1031 Exchange Process
Federal law legislates the procedures and deadlines that must be followed during an exchange. If the investor does
not follow the proper procedures, then the transaction can become disqualified for a 1031 Exchange. American Real
Estate Exchange Services, as a Qualified Intermediary, has outlined the steps involved in a Delayed 1031 Exchange
(the most frequently used type of exchange), below:
Step One:
The process begins when the investor sells the property he wishes to use in the 1031 Exchange. This property is
referred to as the Relinquished Property. A clause is added in the Relinquished Property's Purchase and Sale Agreement
that states the investor's intention to complete a 1031 Exchange. Then, when the sale is complete, all of the proceeds
are placed in an escrow account maintained by a Qualified Intermediary.
Step Two:
The exchanger must now identify the property or properties he would like to purchase. This property is referred to as the
"Replacement Property." The Replacement Property must be identified within 45 days after the closing date of the
Relinquished Property. Sometimes exchangers identify multiple properties as "back-up properties," if the top choice
Replacement Property fails to close. Investors are only allowed to identify three potential properties.
Step Three:
The third step is to purchase the Replacement Property. This purchase must occur within 180 days following the closing
date of the Relinquished Property. The Qualified Intermediary provides the funds from the escrow account and the 1031
Exchange is successfully completed! For more information on the process of a 1031 Exchange, feel free to call American Real
Estate Exchange Services.
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American Real Estate Exchange Services does not provide tax or legal advice, nor can we
make any representations or warranties regarding the tax consequences of your exchange
transaction. You should consult your tax and/or legal advisors before undertaking a 1031
exchange.
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