There are several types of 1031 exchanges, the process is different for each type. These are the steps for the most common type of 1031 exchange, a delayed exchange.
Delayed Exchange – Property is sold and replacement property is purchased within 180 days. Replacement property must be identified within 45 days. Because of the 180 day window this is the most popular type of 1031 exchange.
STEP 1 – PLAN THE TRANSACTION. Talk to us or your Exchange Solutions facilitator to discuss your transaction. After listening to your investment objectives we’ll determine the best way to structure your transaction. We’ll estimate the amount of potential capital gains taxes you’ll save.
STEP 2 – PURCHASE & SALE AGREEMENT. The exchange often begins with a standard purchase and sale agreement. The agreement should contain language which establishes the exchanger’s intent to exchange and obtains the buyers consent to cooperate. Your Exchange Solutions facilitator will convert this “sale” transaction into an exchange with the use of specialized documentation.
STEP 3 – RELINQUISHED PROPERTY. Once you have decided to perform an exchange contact Exchange Solutions immediately. Also notify all parties to the transaction of your intent to exchange, including your real estate agent, closing agent, accountant and attorney.
Exchange Solutions will collect the information needed to prepare the exchange documents. The originals will be forwarded to the closing agent for execution at closing. Copes are sent to all parties for review. At closing the exchanger will transfer the relinquished property to Exchange Solutions and Exchange solutions will simultaneously sell the property to the buyer. The proceeds are then paid the Exchange Solutions and held for the acquisition of the replacement property.
STEP 4 – REPLACEMENT PROPERTY. After closing the relinquished property, the exchanger has 45 days to identify the replacement property and 180 days to complete the exchange. The exchanger notifies Exchange Solutions once they have entered into an agreement to purchase the replacement property. Exchange Solutions will deliver the documents needed to complete the exchange to the closing agent. At closing, the property is purchased by Exchange Solutions and transferred to the exchanger. The exchange is now complete.
Your exchange facilitator is available at every stage to answer questions from your accountant or attorney. We’re specialists in these areas of the local and national tax code so can provide the expert help they want.
Exchanger’s funds are deposited into separate and insured accounts. Because security of the funds is a key concern to the exchanger, Exchange Solutions provides a variety of security devices not available through other intermediaries, including a $3,000,000 fidelity bond.
Every situation is unique. If you are planning to sell property and purchase like-kind property contact us today to find out how much you can save by deferring your capital gains taxes.