1031 in ten steps
The following steps describe a standard 1031 exchange (also known as a “delayed exchange”), for a reverse, construction or build-to-suit please call James directly.
1. Investor decides to sell residential rental, land or commercial property. Investor can select a QI anytime before Step 7.
2. Investor considers cost-benefit analysis of 1031 exchange (Is the juice worth the squeeze?). Considers state and federal capital gains taxes and depreciation recapture taxes. Considers deferring gain and "swap until you drop" estate planning. Investor considers state-specific consideration such as out-of-state seller witholding requirements.
3. Investment property is put on the market. Investor is NOT obligated by law to identify the sale as part of a 1031 exchange.
4. Offer to purchase investment property is accepted. Investor can use standard language provided by QI or an addendum provided by local association of realtors to identify the use of a 1031 and request cooperation by buyer.
5. Settlement for the sale of relinquished property is scheduled. Investor, real estate agent or escrow officer contacts QI to coordinate.
6. QI sends required exchange documents to closing agent or attorney for signing at property closing. QI sends a courtesy copy of all exchange documents to the taxpayer.
7. Relinquished Property Closing Occurs. Proceeds generated by the sale are sent to QI as required by law to avoid constructively receiving funds and creating a taxable event.
8. Within the first 45 days after the settlement on the sale of the relinquished property investor identifies replacement property as required by law.
9. Within 180 after the settlement on the sale of the relinquished property, investor closes on replacement property that was identified by them. The exchange is completed.
10. Form 8824 is completed April 15th of corresponding tax year.
Please note: It is our experience that the most difficult component of a 1031 Exchange is identifying replacement property within the first 45 days following the sale of your relinquished property. The IRS does not allow extensions. Get a contract on your replacement property before settlement of your relinquished property to assure a successful 1031 exchange.