Types of 1031 Exchanges: The Delayed Exchange
The delayed exchange is common and straightforward: the Exchangor relinquishes property before he acquires property. In other words, the property the Exchangor owns (called the “relinquished” property) is transferred first. The property the Exchangor wishes to own (called the “replacement” property) is acquired second.
Before the delayed exchange is initiated, the Exchangor is responsible for marketing the property, securing a buyer, and executing a sale and purchase agreement. The Exchangor’s obligation to sell the relinquished property is then assigned to an intermediary. Through the assignment, the intermediary transfers the relinquished property to the buyer, and the intermediary then receives money (exchange proceeds) from the buyer for the relinquished property.
Within 45 days of the relinquished property transfer, the Exchangor must identify a replacement property to acquire. The Exchangor negotiates the purchase terms for the replacement property with the seller and executes a purchase and sale agreement. The Exchangor’s obligation to buy the Replacement property is then assigned to the intermediary. The assignment allows the intermediary to use the exchange proceeds (in addition to other funds provided by the Exchangor) to purchase the replacement property.
The intermediary is mandated by IRC Section 1031 to transfer the replacement property to the Exchangor within 180 days of the relinquished property transfer.
EXCHANGOR’S GUIDELINES TO ACCOMPLISHING THE DELAYED EXCHANGE
Phase I: The Relinquishment
Contact Realty Capital Analytics.
We will have a complementary consultation to discuss the exchange process.
We will establish an account with an intermediary.
We will locate a buyer for your property or properties.
Negotiate the terms for the sale.
Sign the purchase and sale agreement.
The agreement must have a paragraph stating that the sale is subject to a 1031 Exchange and the buyer agrees to cooperate with the exchange (1031 Exchange Cooperation Clause).
We will contact your closing agent.
Provide sale information.
Inform the closer that the sale involves a 1031 Exchange and that an intermediary will be facilitating the exchange and will contact them shortly.
RCA gathers the additional information necessary to structure and complete the exchange.
Documents are generated and sent to all appropriate parties.
Closing occurs.
Both parties (Exchangor and Buyer) sign exchange documents.
Relinquished property title is direct deeded from Exchangor to the Buyer.
Closing Agent forwards the sale proceeds to a federally insured bank account designated by intermediary.
This completes Phase I of the exchange.
Phase II: The Acquisition
Review the Identification Packet sent to you by RCA.
RCA creates and forwards an Identification Packet for your review after receiving the Final Settlement Statement from the Closing Agent.
The packet contains the following: the relinquished property’s transfer date, the amount of exchange proceeds received, the 45-day identification deadline, and the 180-day deadline to complete the exchange.
The identification form provided must be filled out and signed by you, the Exchangor.
We will guide you in locating the property or properties you wish to buy.
RCA will negotiate the terms for the purchase.
Sign a purchase and sale agreement.
The agreement must have a paragraph stating the sale is subject to a 1031 Exchange and the buyer agrees to cooperate with the exchange (1031 Exchange Cooperation Clause).
Identify the property or properties you wish to buy.
This must be done by midnight of the 45th day of your exchange period.
Send information to intermediary.
THE IRS DOES NOT ISSUE EXTENSIONS unless you and/or the property is impacted by a Presidentially Declared Disaster.
Contact Closing Agent.
Provide sale information.
Inform agent that the sale involves a 1031 Exchange and that the intermediary will contact them shortly.
RCA gathers the additional information necessary to complete the exchange.
Documents are generated and sent to all appropriate parties.
Closing occurs.
Both parties (Exchangor and Seller) sign exchange documents.
Intermediary wires exchange proceeds to the closing agent for the purchase of the replacement property.
This completes Phase II of the exchange transaction, and also completes the 1031 Exchange.
Interested in doing a 1031 Exchange? Contact Realty Capital Analytics today for a complementary consultation.