Process of carrying out a 1031 properties exchange
1031 properties exchange is a property exchange wherein the owner of the property gives up one or more relinquished properties for one or more replacement properties. According to Section 1031 of IRS the properties exchanged must be of the same kind and such an exchange will enable the property owner to defer the payment of federal income taxes and some state taxes.In order to carry out the 1031 properties exchange transaction, you need to consult a qualified intermediary. Here you need to compare the services, costs, and references of several Qualified Intermediaries before selecting one. I t is vital to select a proper Qualified Intermediary because the work they do is essential to the success of the exchange. Your Qualified Intermediary must be someone who is efficient, experienced and most importantly someone whom you can trust. The process of such an exchange is started first by preparing a contract which states the exchange. It is very important to word the contract carefully and it must explicitly state that you are going to sell or purchase real estate with the intention of performing a 1031 exchange. The next step is to identify the “Replacement Property”. This is the property you intend to get in place of the property you have sold. You are given a period of forty five days to do this task, This time period starts from the time you disposed the property you wanted to relinquish and during this period you can identify up to three properties for such an exchange. You can ask your qualified intermediary as many questions you feel is necessary to understand about the exchange process. The list of replacement properties prepared by you must be sent to your qualified intermediary. Remember the IRS offers no flexibility on this time period which is up to a period of forty five days. Once you have identified the property, you should close the deal on the new property within 180 days of the closing on the relinquished property. You or your agent should stay in contact with the intermediary, keeping them advised regarding closing dates. They will be responsible for most of the paperwork associated with the exchange, and may have specific lead-time or other requirements for each step of the process. Once the property exchange process is complete the qualified intermediary will return to you all valid documents related to the replacement property.
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