exchange quiz
Answer Key
Beginner:
1. How many days do you have to identify a property? (The Identification Period)
a. 30 Days
b. 45 Days
c. 90 Days
d. 180 Days
2. When does your identification period start?
a. The day you request an exchange
b. The day a buyer signs the purchase agreement
c. The day the relinquished property records
d. The day after the relinquished property records
3. How many days do you have to purchase a replacement property? (The Replacement Period)
a. 30 Days
b. 45 Days
c. 90 Days
d. 180 Days
4. How many total days are there in a 1031 exchange?
a. 180 days in total to both identify and purchase the new property
b. 90 days in total to both identify and purchase the new property
c. 45 days in total to both identify and purchase the new property
d. 30 days in total to both identify and purchase the new property
Note: You must identify in 45 days and close escrow in 180 days.
Intermediate:
5. If I sell a duplex, does that mean I have to buy another duplex?
a. Yes, you must buy like-kind property
b. No, you can buy any property you like
c. Yes, you must also buy in the same state
d. No, you can buy any type of real estate so long as it is held for investment purposes
Note: The definition of like-kind real estate is very broad. It applies to almost any real estate held for investment purposes.
6. I bought a townhouse and I live in one side and rent out the other. Can I do a 1031 exchange on the side that I rent and still qualify for the 250,000/$500,000 exemption on the other side that I live in?
a. Yes
b. No
Note: The 121 Exclusion allows the owner of a primary residence and their spouse that has lived in the residence for 2 out of the last 5 years to reduce the taxable amount of the sale of their primary residence by $250,000 per real person. The owner occupied portion of this property qualifies for this exemption.
7. I sold my property for net $700,000. There was a $400,000 mortgage. When I purchase a replacement property, how much do I have to spend if I don’t want to pay any taxes?
a. $300,000
b. $400,000
c. $700,000
d. $1,400,000
Note: The replacement property (the property you are buying) must be of equal or greater value to the relinquished property net sales price (the property you are selling).
8. If I sell a property for $1 million and I have a $400,000 mortgage, how much cash from this sale must I put into the replacement property and how much mortgage would I need to obtain to not pay any taxes?
a. Cash $400,000, Mortgage at least $600,000
b. Cash $600,000, Mortgage at least $400,000
c. Cash $500,000, Mortgage at least $500,000
d. Cash $0, Mortgage at least $1,000,000
Note: Any cash not reinvested is taxed, dollar for dollar, therefore the cash from the sale of the relinquished property and the mortgage from the relinquished property must be replaced. You can add more cash or mortgage to the deal but both be replaced.
A wise investor will mortgage only what he/she needs to acquire the replacement property and after closing refinance to pull out the wanted cash without tax liability. This allows the Investor to have the additional cash without being taxed.
Pro:
9. Can timber rights, water rights, cars, co-ops, air rights, artwork, oil and gas royalties, and mineral rights be exchanged?
a. Oil and gas royalties may only be owned by energy companies and cannot be exchanged; everything else can be exchanged
b. Water and timber rights may only be owned by state and federal governments and cannot be exchanged; everything else can be exchanged
c. Water and air cannot be owned and therefore cannot be exchanged; everything else can be exchanged
d. Cars and artwork are considered personal property and cannot be exchanged; everything else can be exchanged
Note: Cars, artwork, and a primary residence are considered personal property. No personal property can be exchanged. Everything else CAN be exchanged.
10. What if my 45th or 180th date falls on a national holiday or weekend?
a. There is no date extension
b. The date is extended to the next business day
c. The date is shortened to the first business day before this date
d. The date is moved to the following Monday
Note: There are no extensions granted whatsoever. However, on some occasions like a significant event such as weather, earthquake, or serious financial challenges such as Covid, the government may extend the 45 or 180 day periods.
