In the most commonly executed exchange transaction, a Forward Delayed Exchange, a taxpayer will sell qualified exchange property (the relinquished property), and then use the proceeds to purchase other like- kind property (the replacement property). In order for the exchange to qualify for tax-deferral under the safe harbor regulations, the sale proceeds must be held on behalf of the taxpayer by a QI; should the taxpayer have direct access to the sale proceeds, the tax-deferral treatment would be denied.
Generally, there are three steps to successfully completing a Forward- Delayed 1031 exchange.
Step One: Sale of the Relinquished Property:
A taxpayer must involve a QI before closing on the sale of relinquished property. The QI will need time to open a bank account for the exchange and prepare and send its exchange documentation to the relinquished property closing. SEA1031 certainly can assist at the last minute, but we prefer to prepare our exchange package well in advance of closing so all involved parties have enough time to read and review our closing instructions and documents. These instructions and documents will impact the settlement statement. Upon closing, the closing agent for the transaction will wire exchange proceeds directly to the segregated exchange account SEA1031 has opened for the exchange.
Step Two: Identification of Replacement Property:
Within 45 days of the relinquished property closing, the taxpayer must identify potential replacement properties to the QI in writing. The taxpayer may identify up to three potential replacement properties without regard to their value. If the taxpayer identifies more than three, it will be subject to alternative rules discussed below (the 200% Rule and the 95% Rule).
Step Three: Acquisition of the Replacement Property:
Within 180 days of closing on the sale of the relinquished property, the taxpayer must close on the purchase of replacement property identified in the first 45 days after the sale. SEA1031 will wire exchange proceeds for the purchase directly to the replacement property closing.
Strategic 1031 Exchange Advisors, LLC, a Georgia limited liability company, is a qualified intermediary for 1031 exchanges only. It is not an accounting firm, law firm or registered investment professional and therefore is not qualified to give accounting, tax, legal or investment advice, and, further, cannot act in an agency capacity on behalf of its clients. This website is for informational purposes only and does not and is not intended to constitute accounting, tax, legal or investment advice. We advise you to consult with your accountant, attorney and investment professional on all matters related to your exchange.