General

Exchanges are a little more complicated than a typical transaction but you don’t need to know everything. The Qualified Intermediary (QI) will provide detailed instructions to keep everything as simple as possible for you. 

The QI acts as middleman in the exchange in accordance with one of the safe harbors of the 1031 regulations. Some of the functions the QI serves includes:

• Acquires and conveys both properties through a paper assignment
• Prepares necessary exchange documentation
• Controls exchange proceeds
• Coordinates details with closing agents
• Keeps you aware of time deadlines

No, the QI is not the closing agent. The QI acts as the Qualified Intermediary and handles all of the exchange requirements. The closing agent should be selected just as in any other transaction. 

Absolutely not! If anything, the 1031 exchange can help expedite the closing because the Exchanger has exchange funds held by the QI and available for immediate acquisition. Additionally, he/she needs to acquire the property within the 180-Day Exchange Period.

Once title to the property has been conveyed to the Buyer and the Seller has received the sale proceeds it is too late to initiate an exchange. However, if the Seller decides even as late as at the closing table, contact us immediately and I can usually make the exchange work for your client. 

There is a requirement that title to both the relinquished and replacement properties be vested in the same name. An exception to this requirement is a single member limited liability company (SMLLC) in which the sole member is the taxpayer that sold the relinquished property. The sole member can be an individual taxpayer or an entity.

Any type of real estate qualifies for tax deferral under Section 1031 as long as it is held for business use or investment. A duplex can be exchanged for vacant land or three condos located in three different cities can be exchanged for a beach front rental.

There is a requirement that the replacement property be of equal or greater value than the relinquished property. If adding a spouse to the deed, the Exchanger’s percentage of ownership must be equal or greater than the net selling price of the relinquished property. Generally to make it feasible to add a spouse without creating a taxable event, the Exchanger’s replacement property must be at least twice as valuable as the relinquished property.

There is a requirement that there be equal or greater equity in the replacement property. Any cash not reinvested is taxed, dollar for dollar. A wise Exchanger will mortgage only what he/she needs to acquire the replacement property and after closing refinance to pull out the wanted cash without tax liability. This allows the Exchanger to have the additional cash without the tax.

For Lenders

For Title & Escrow Officers 

For Real Estate Professionals