1031 Exchanges can be complicated for non-specialists to follow. With the right basic knowledge of the 1031 exchange, we believe that we can help our clients make an informed decision when it comes to the type of interaction they want. Knowing how a 1031 exchange happens is crucial to understanding the timelines, dates, and procedures. You don’t have to know all the details, just the ones that concern you as the exchanger.
1031 Exchanges are an IRS-approved method where investment or business property of the same type changes hands. While the 1031 transfer is used primarily for real estate, it has also been used for other depreciable and non-depreciable assets. The IRS requires a neutral third party known as the accommodator, qualified intermediary (QI), or facilitator to conduct the transaction. DeferTax acts as the third-party body for all of our clients’ 1031 transfers.
A delayed exchange is a common transaction that DeferTax performs for quite a lot of our clients. In a delayed exchange, the exchanger hands over a particular property (known as the “relinquished” property) before getting a property in exchange (the “replacement” property). The transfer order sees the relinquished property go to the recipient before the replacement property comes into possession of the exchanger.
The exchanger is responsible for arrangements before the initial property transfer. This responsibility includes marketing the property, finding a buyer for it, putting in place a sale and purchase agreement. When all these are accomplished, the exchanger’s obligation to sell then comes to DeferTax. On assignment, we transfer the relinquished property to the buyer and receive the buyer’s money for the property.
Within forty-five (45) days of the transfer of the relinquished property being transferred, the exchanger is responsible for nominating a property to replace the relinquished property. The exchanger then negotiates the sale with the seller and enacts a purchase and sale agreement. The exchanger then passes his or her obligation to buy over to DeferTax, which then uses the exchange proceeds to acquire the replacement property. The replacement property is then given to the exchanger, per agreement.
DeferTax has a mandate under IRC 1031 to transfer the property to the exchanger within 180 days of the relinquished property transfer date.
The first phase of exchange is complete at this point. In a nutshell, when you’ve gotten to this part of the process, you have transferred property to DeferTax, which has then sold it on to the buyer and put the proceeds aside to be used to acquire a replacement property.
This process completes the second and final phase of the exchange. The transfer of the replacement property signals the completion of the 1031 deal.
DeferTax has done many delayed exchanges for our clients, ensuring that they get beneficial exchanges for their property transfers. Interested in finding out how DeferTax can help you with a delayed 1031 exchange?