How A Typical 1031 Exchange Works

 Typical 1031 Exchange

We get a lot of questions about how 1031 exchanges work. In this article, we are going to explain the typical process for a standard 1031 exchange of real estate.

Relinquished Property Purchase Agreement

The 1031 exchange process begins when you complete your purchase agreement for your relinquished property. The purchase agreement should state that you intend to do a 1031 exchange.

Find a Closing Company

You then need to contact a title company to close the transaction, and be sure to inform them that your transaction is a 1031 exchange.

Notify Your Exchange Company

At this point you need to notify your exchange company or qualified intermediary of the closing date, so they can prepare all the necessary documentation.

Close on the Relinquished Property

Your qualified intermediary will contact your closing agent and work with them to set up the exchange properly. This will involve the preparation of numerous closing documents.

Identify Your Replacement Property

After you close on your relinquished property, you have the next 45 days to identify in writing your new replacement property.

Replacement Property Purchase/Sale Agreement 

Similar to your relinquished property transaction, you’ll need to enter into a purchase/sale agreement for your replacement property.

Select a Closing Company

Find a title company to close your replacement property transaction and be sure to inform them that you are doing a 1031 exchange.

Close on the Replacement Property

Work with your qualified intermediary to set up the replacement property closing as a 1031 exchange.

Report Your Exchange on Your Tax Return

Finally, you’ll want to make sure to report your 1031 exchange on your tax return using IRS Form 8824.

Minneapolis Qualified Intermediary

Commercial Partners Exchange Company (CPEC1031) works with taxpayers large and small who want to defer their capital gains taxes on the sale of real estate. Our qualified intermediaries have decades of experience performing like-kind exchanges and will help you through every step of the 1031 exchange process, including document preparation, and advisement on replacement property. Contact us today to see if you are a good candidate for a 1031 exchange of real property.

  • 1031 Hotline: If you have questions about the 1031 exchange process, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

 

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