Cash Equivalents refer to short-term, highly liquid investments that are readily convertible to cash, with low risk of changes in value and can be used to defer taxes in a 1031 exchange.
Key-Takeaway
- Cash Equivalents are only eligible as a temporary holding period in a 1031 exchange and must be reinvested in a like-kind property within a specified time frame.
- The value of cash equivalents may decrease over time and, as a result, may negatively impact the overall value of the 1031 exchange.
Example
- Treasury Bills
- Money Market Funds
- Certificates of Deposit
Tips
- Consider the duration of holding the cash equivalent in relation to the timing of the exchange.
- Carefully evaluate the creditworthiness and stability of the financial institution issuing the cash equivalent.
Advice
Consult a qualified intermediary or tax advisor to determine the most suitable cash equivalent for your 1031 exchange needs.
Recommendations
- Consider diversifying the cash equivalents to reduce risk.
- Regularly monitor the market to ensure the cash equivalent remains a good investment option.
