Real Estate Exchanges
The most common type of 1031 Exchange is used for real estate or real property. In general, any type of U.S.A. real property held by the client for productive use in a trade or business, or for investment purposes can be exchanged for more real property as long as the properties are of "like-kind", regardless of grade or quality.
For more real estate exchanges, the taxable gain is due to a combination of the appreciation in value and the amount of depreciation taken over the period of time that it was owned by the client. Many investors like to see what kind of tax savings they can benefit from when they sell their investment property.
3 most common exchanges
Forward Exchanges - The most common "standard" type of 1031 exchange. This is typically what people picture when they think of 1031 exchanges. In a forward exchange, you sell a piece of relinquished property. Then, you identify replacement property within 45 days. Finally, you close on your new replacement property and roll your net proceeds into that property on or before the 180th day following your relinquished property sale.
Reverse Exchanges - A reverse 1031 exchange accomplishes the same goal of a standard exchange (tax deferral) but with the order reversed. Instead of selling the relinquished property first, a reverse exchange starts with the acquisition of a replacement property, and ends with the sale of the relinquished property. All time frames are the same.
Build-to-Suit Exchanges - A build-to-suit exchange (construction improvement exchange) is a 1031 exchange in which the Exchanger starts improvements to their replacement property prior to closing. This type of exchange is good for people who have found a replacement property that doesn't quite fit their needs. You can make the necessary improvements to your replacement property and include those as a part of your exchange.