1031 Exchange Property: A simple step by step procedure to avoid paying a taxable event!

The following procedures are intended to provide an overview of the steps involved in an IRC Section 1031 tax deferred exchange and does not include all issues involved in an 1031 exchange property.

Please always consult tax or legal advice regarding your specific purchase or sale of investment or income property.

1. PREPARE IN ADVANCE: Review the entire transaction with tax and/or legal advisors.
2. CONTACT AN INTERMEDIARY: Before closing, contact A PROFESSIONAL intermediary to initiate the exchange transaction.
3. SALE CONTRACT: Investors enter into an “assignable” contract to sell the relinquished property. Execute contract with the exchanger’s name and/or assigns, and with language recognizing the exchange, with the other party’s consent.
4. EXCHANGE PREPERATION: YOUR intermediary will prepare the exchange documents for the relinquished property sale.
   • The original documents will be forwarded to the closing officer who will coordinate the signatures.
   • Copies of documents are forwarded to the exchanger.
5. RELINQUISHED PROPERTY CLOSES: The intermediary is assigned into the transaction as the seller and sale closes.
   • Pursuant to the assignment agreement and exchange documents, the intermediary instructs the closing officer to directly deed the relinquished property to the buyer.
   • Exchange proceeds are transferred directly to the intermediary via wire transfer.
6. IDENTIFICATION PERIOD: Both the 45-day identification period and exchange period begin.It is the sole responsibility of the exchanger to meet all identification rules, meet the timelines for the 45-day identification period and 180-day exchange period (or the date the tax return is due, whichever is earlier) exchange period, the identification requirements and the identification rules.
7. PROPERTY IDENTIFIED: Exchanger properly identifies replacement property by midnight of the 45th day.
   • Specific written identification, signed by the taxpayer, is forwarded to the intermediary.
   • Written identification can also be made to a party involved in the exchange transaction who is not a disqualified person.
8. PURCHASE CONTRACT: Enter into an “assignable” contract to purchase replacement property.
   Execute contract with the exchanger’s name and/or assigns, and with language recognizing the exchange, with the other party’s consent.
9. CONTACT INTERMEDIARY: After signing the replacement property contract, contact INTERMEDIARY.
10. EXCHANGE PAPERWORK PREPARED: Intermediary will prepare the exchange documents for purchase
    • The original documents will be forwarded to the closing officer who will coordinate the signatures.
    • Copies of documents are forwarded to the exchanger.
11. REPLACEMENT PROPERTY CLOSES: INTERMEDIARY is assigned into the transaction and purchase closes.
    • Pursuant to the assignment agreement and exchange documents, the intermediary instructs the closing officer to directly deed the replacement property from the seller.
    • The intermediary wire transfers exchange proceeds to the closing officer.

CONCLUSION

If all exchange funds are used to acquire the replacement property or properties, and all the exchange requirements are met, the exchange is finished.