1031 Exchange Basics
Before you put the property under contract, find someone to act as a qualified intermediary, also called a facilitator or accommodator. This person or entity is a neutral party that takes possession of the proceeds from the sale of your property, uses the funds to purchase the new property, then transfers title of the property to you.
The Wording is Critical
Your contract to sell or purchase real estate must contain wording that shows an intent to perform a 1031 exchange.
You (or your agent) should send the intermediary a copy of the sales contract and any other information they require.
Identifying the Replacement Property
If you haven't already done so, identify replacement property. You have 45 days from closing on the relinquished real estate, the property you are selling, to identify up to three replacements. Your list must be sent to the intermediary in writing. The IRS offers no flexibility on this time period.
Closing Dates Are Important
The closing date for the new property must take place within 180 days of the closing on the
relinquished property.
Keep In Touch with All Parties
You or your agent should stay in contact with the intermediary,
keeping them advised regarding closing dates. They will be
responsible for most of the paperwork associated with the
exchange, and may have specific lead-time or other requirements
for each step of the process.
Doing a Partial Exchange
If you plan to use only part of your proceeds for a 1031
exchange, consult with the intermediary to make sure your sales
contract is worded correctly. You might also want to talk with
an accountant to find out how the cash sale will impact your
taxes.
Compare Intermediaries
Be sure to compare the services, costs, and references of
several qualified intermediaries before selecting one to handle
your 1031 exchange. The work they do is essential to the success
of the exchange--make sure it's a trustworthy and experienced
company or individual.
Ask as many questions as necessary to make you feel comfortable
with the process. A tax deferred exchange is not difficult to
do, but there are specific steps you must follow to make sure
every aspect of the sale and purchase complies with US tax laws.
 |