8 STEPS TO A SUCCESSFUL 1031 EXCHANGE
8 STEPS TO A SUCCESSFUL 1031 EXCHANGE
Step 1: Purchase Contract- relinquished property
You and your buyer enter into a purchase contract with respect to the sale of your property (known as the “relinquished property”). This relinquished property purchase contract should contain a “cooperation clause” obligating the buyer to cooperate in structuring the transaction as a tax-deferred exchange.
Step 2: Relinquished property exchange documents
Next, contact First American Exchange to start the tax-deferred exchange process. We will prepare an ‘Exchange Agreement’, an ‘Assignment of the Relinquished Property Purchase Contract’ (assigning your rights as seller to us), a ‘Notice of the Assignment’ (for delivery to the buyer), and instructions to the settlement agent necessary to complete the transaction. All of these documents must be executed on or before the date of closing.
Step 3: Closing the relinquished property
When the conditions of closing have been met, your relinquished property will be conveyed to the buyer. While the conveyance will be directly from you to the buyer, it will represent a transfer from you to First American Exchange in exchange for other property that you will receive at a later date. It also represents the sale from First American Exchange to the buyer for cash. The cash proceeds from the sale of the relinquished property must be delivered directly to First American Exchange. At no time should you be in either actual receipt or constructive receipt of the cash proceeds, or your exchange could fail.
Step 4: Relinquished property proceeds and forms
Following the relinquished property closing, First American Exchange will hold the exchange proceeds and provide you with forms to identify potential replacement properties within the 45-day identification period.
Step 5: Purchase Contract – replacement property
After you have identified suitable “like-kind” replacement properties and made a decision as to which identified properties you intend to acquire, you will enter into a ‘Purchase Contract’ with the seller. This ‘Replacement Property Purchase Contract’ should also contain a “cooperation clause” obligating the seller to cooperate with you in completing your tax-deferred exchange.
Step 6: Replacement property exchange documents
First American Exchange will then prepare an ‘Assignment of the Replacement Property Purchase Contract’ (assigning your rights as buyer to us), ‘Notice of the Assignment’ (for delivery to the seller), and instructions to the settlement agent necessary to complete the transaction. All of these documents must be signed before or as of the date of closing.
Step 7: Closing the replacement property
When the conditions of closing have been met, First American Exchange will deliver the exchange proceeds to the settlement agent to acquire the replacement property. The seller will convey the replacement property directly to you. This conveyance will represent a purchase from the seller by First American Exchange and a transfer to you in completion of the exchange. Remember that, to qualify for tax-deferred treatment, this closing must occur by the earlier of 180 days from the date of closing on your first relinquished property or the due date of filing your federal income tax return for the year in which your first relinquished property was sold, including extensions.
Step 8: Keeping you informed and final reconciliation
Prior to or at the conclusion of your exchange, First American Exchange Company will provide you with a copy of your exchange documents, including a statement reflecting the receipt and disbursement of all exchange funds. With this information, you and your tax advisor will complete Form 8824 to be filed with your federal income tax return, as well as any state forms required to report the transaction as an exchange.
*Source: All 1031 content provided by First American Exchange Company
Preferred Qualified Intermediary:
First American Exchange Company
Certified Exchange Specialist
Senior vice President / Regional Manager
2500 Paseo Verde Pkwy., Suite 120
Henderson, NV 89074