Which statement describes the restrictions and requirements of a 1031 exchange?

• A. There are no timelines or reinvestment requirements
• B. It allows deferral only for personal residences
• C. It requires like-kind property, timelines for identification and exchange, and reinvestment requirements
• D. It defers all taxes forever without limit

Answer: (C)

A 1031 exchange lets you defer taxes when you swap investment or business real estate for like-kind property and follow specific rules. The key requirements are that the properties are like-kind (real estate for real estate held as investment or for business), you must identify potential replacement properties within a 45-day window and complete the exchange within 180 days, and you must reinvest the proceeds into like-kind property to maintain the deferral. Often a qualified intermediary is used so the seller does not take possession of the sale proceeds, preserving the tax-advantaged structure. If you receive cash or non-like-kind property (boot), some of the tax deferral is lost and may become taxable. These elements together describe how a 1031 exchange is restricted and regulated. The other statements fall short because they omit one or more of these essential requirements.