1031 Property Exchange - A Step by Step Guide
If you are considering a 1031 property
exchange, we are sure you are, that is why you are on
this page now, we are going to provide you with a complete
step-by-step guide on setting up your 1031 property
exchange. Section 1031 being one of the most closely
guarded secrets of the IRC, is often missed out by people
simply due to lack of awareness but once you are through
with our website the scenario will no more be the same
and you can also avail the golden opportunity of 1031
property exchange. And yes, we are always here to provide
you with professional consultation about your 1031 property
exchange.
PHASE I
1) When
you are going for a 1031 property exchange it is very
important that you know as much details about the process
as possible. Read through our site, specially the 1031
Property Exchange Rules section. Speak to your tax
consultant to calculate your tax exposure and make an
estimate of your Capital Gain from the transaction to
see if it is a feasible exchange for you ( We can help
you with this—contact
us here)
2) Complete your purchase and sale
agreement just as you would have done with a regular
sale. We suggest you insert a clause in this, which
clearly states that this transaction will be a delayed
exchange and there will be no lack of disclosure which
may otherwise obstruct the transaction.
This can be done by incorporating
a clause as folows :
"A material part of this
transaction is the successful completion of an I.R.S.
Code Section 1031 deferred exchange. "Buyer/Seller"
agrees to cooperate with the "Exchanger" (note:
insert the full name of the party doing the exchange
in place of the word "Exchanger") in signing
those documents necessary to complete the exchange,
provided that "Buyer/Seller" shall incur no
additional costs or liabilities in excess of those which
would have occurred had this been an outright "purchase/sale,"
and not an exchange."
3) When
your agreement is complete and fully signed take it
to your closing agent. Make sure that you tell the closing
agent that this is going to be a 1031 property exchange.
If you are working with a real estate agent, he will
do it for you.
4) After
this you need to notify us about the details of your
closing agent. We will need the name, the phone number
of the closing agent, the company and the file number
(sometimes referred to as the escrow number). You can
send us this information through the contact
form.
5) We
will then contact your closing agent and get any additional
info that is required. We will set up and exchange file
for you, process the 1031 property exchange documents
and send these documents directly to the closing agent.
You can sign the documents once you get it from the
closing agent and provide with any other closing document.
6) After the exchange sale is complete, the closing agent
will transfer the proceeds to our account. On receipt
of the fund and a copy of the final closing statement
we will send you a letter showing the amount of proceeds
we received. (This should be same as the amount shown
in the closing statement). In this letter, we will also
inform you about the 45-day and 180-day period and a
form will be enclosed for you to identify the replacement
property.
Once you have done this much, you are
into your 45 days period of your 1031 property exchange.
PHASE II
7) Before the
end of the 45 days identification period you need to
identify the properties for 1031 exchange. You can inform
us about these properties through the form provided
by us or through any other similar written format. This
can be sent to us by mail, email or fax. For this document
to have validity, it should be fully signed by each
named, “Exchanger”.
8) Now you need
to write and sign the purchase and sale agreements including
the “Exchange Clause” and open escrow, similar
to the first transaction. Inform your closing agent
that this is a 1031 property exchange and we are your
Qualified Intermediary. It is not necessary for the
closing agent to be the same one who sold the relinquished
property.
9) Once you have
done this you need to inform us about the details of
your closing agent and how much of the proceeds do you
want to use for the purchase. We would also like to
know an approximate date when you are planning to close
this transaction.
10) We will then
contact your closing agent and get any additional info
that is required. We will send the exchange closing
documents directly to the closing agent. After both
the parties have signed the closing documents the closing
agent will send us those documents. Upon receipt of
those documents we will wire transfer the amount into
escrow. This can be recorded as the close of the exchange
and you have completed your exchange.
Additional Info:
After the exchange is complete, the
closing agent is supposed to give you copies of all
the documents used in the transaction. When you have
closed on the identified property or your 180-day period
is over, your exchange ends. We will return any unused
proceeds. Ideally you should try to use the entire proceed
for your 1031 property exchange as any remaining balance
is taxable on their full amount.
While filing your taxes you need
to report the exchange through: IRS
form 8824 “Like Kind Exchanges”
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