Let’s talk about some of the basics you want to include on a closing statement when conducting a 1031 exchange.
Party Identification
The first thing you want to do is make sure that you have the proper identity of the parties involved in the exchange. If you’re doing a 1031 exchange, often the identity of the seller is dressed up to reflect that the seller is the qualified intermediary on behalf of the taxpayer. The intermediary becomes the synthetic seller under the treasury regulations – a sort of surrogate that takes the sales proceeds. If you’re doing a 1031 exchange (either as a buyer or a seller) you may want to dress up the settlement statement to reflect that nuance.
Closing Date
Many things depend on the date of closing – the day that the benefits and burdens of ownership shift. For example, we use the date of closing to calculate your 45 day identification period as well as the 180 day exchange period. Sometimes people will prepare a settlement statement and then the transaction won’t close on the day that it’s planned to, but nobody changes the closing date on the settlement statement. Or perhaps there are multiple dates – a closing date and then a date for disbursing the funds. In this situation, what is the closing date? The date of closing or the date the funds were received? Determining the date of transfer itself is essential because all of your 1031 exchange deadlines will be calculated from that. If there’s a discrepancy it’s important to resolve it.
Another important detail is how much you sold your property for. In a 1031 exchange, if you’re using the 200% rule for identifying your property (which is a ceiling which caps how much you can identify) knowing the consideration that was paid for the relinquished property is critical because you double that amount to get to your ceiling. If there’s a change in purchase price, it should be reflected in the settlement statement.
Defer The Tax – Maximize Your Gain
With a 1031 exchange, you can defer your capital gains tax burden and maximize your gain by reinvesting your net proceeds into a bigger and better investment. If you want to learn more about the specific benefits and requirements of a 1031 exchange, contact an intermediary at CPEC1031, LLC today. Our qualified intermediaries have over two decades worth of experience working on all types of 1031 exchanges. We can help you navigate the waters of the 1031 exchange process. Contact us today at our Minneapolis offices to learn more!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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