The Exchange Process from Start to Finish
Back to basics: As the Qualified Intermediary (QI), 1031 CORP.’s role is to facilitate the exchange process and make it easy for you to complete your 1031 exchange. Among other steps, 1031 CORP. will prepare the necessary exchange documentation, coordinate the exchange details with all parties, keep you aware of the timing requirements, hold the proceeds from the sale, and answer any questions throughout the exchange process.
The principle behind Section 1031 is the continuous investment in like-kind real property. A 1031 exchange allows you to defer capital gains, transfer your depreciation schedule, preserve wealth, and leverage your equity. Through the Exchange Agreement, 1031 CORP. agrees to acquire, hold and convey your properties, although in a typical exchange, 1031 CORP. does not take legal title to the properties.
The 1031 exchange process is not complex, but there are requirements. A critical qualification for a valid 1031 exchange is the first call; You must employ your QI, 1031 CORP., before the closing of your relinquished property is complete. You can initiate the exchange at the closing table if needed but consider contacting us with plenty of lead time.
1031 CORP. cannot provide tax or legal advice, but your tax or legal advisor will help you determine whether a 1031 exchange is best for your particular situation. From the initial planning stage through the final tax reporting stage, 1031 CORP. strives to provide an exceptional exchange experience, making the process easy. We support you, help with any questions, and look forward to a continued relationship beyond your transaction.
The 1031 Exchange Process
- List your relinquished property for sale and sign the Agreement of Sale.
- Once you have a signed Agreement with a buyer, contact 1031 CORP. before closing to start the exchange process and begin to look for potential replacement properties. Planning ahead and leaving yourself plenty of time before starting the exchange will give you the best benefit. However, we can initiate an exchange at the last minute—even at the closing table.
- Your Exchange Team member will contact the closing or escrow officer handling the closing to give instructions for the 1031 exchange.
- At closing of your relinquished property, through a Relinquished Property Assignment, the relinquished property flows through 1031 CORP. even though the deed transfers the relinquished property directly from you to the buyer. 1031 CORP. receives the proceeds of the sale, referred to as exchange funds. We deposit the exchange funds into a segregated, FDIC-insured exchange deposit account attached to your name and taxpayer identification number.1031 CORP. provides you with written confirmation of your deposit. You can view your account on the bank’s website and will receive monthly statements directly from the bank.
- You’ve been looking for replacement properties and will need to identify potential replacement properties to 1031 CORP. by midnight of the 45th day after closing. If you can, work to get properties under contract before the end of your 45-Day Identification Period. You must purchase at least one of the properties you’ve identified. Certain identification rules apply.
- Once you’ve decided which property to purchase, sign the Agreement of Sale for the new, replacement property. 1031 CORP. will issue documentation to sign over any earnest money deposits. You can use exchange funds to take care of the deposit and routine closing costs.
- Prior to the closing of the replacement property, 1031 CORP. will provide the closing or escrow officer with exchange instructions for the closing and for transfer of exchange funds. 1031 CORP will communicate with the closing officer, verify the information to secure your funds, and wire transfer the exchange funds for the purchase. The security of your funds and investment are paramount at 1031 CORP. We follow stringent security procedures.
- Through a Replacement Property Assignment, 1031 CORP. transfers title, even though the deed transfers the replacement property directly from the seller to you. Once the closing of the replacement property is complete, the exchange is also complete unless you wish to acquire additional replacement properties. You must close on the replacement property by the end of the 180-Day Exchange Period.
- You will receive a Document Summary package, including the executed Exchange Agreement, closing statements, assignments, and an exchange account summary. Your tax advisor will file any tax forms required to report your exchange on your annual tax return.
While your exchange may be complete, your relationship with 1031 CORP. continues. We provide an exceptional exchange experience, made easy, to welcome you as a client for life.
The 1031 CORP. Exchange Team loves your questions and will guide you through each of these steps. We also have a wealth of information on our website.
By law, a Qualified Intermediary cannot give tax or legal advice. This information is intended to be educational. Consult with your advisors to determine whether a 1031 exchange is right for your unique circumstance.