For additional information on the 1031 Exchange, click here

A 1031 exchange is simply a method by which a real property owner disposes of one property and acquires another without having to pay any capital gains tax on the transaction. In an ordinary sale transaction, the property owner is taxed on any gain realized by the sale of the property. In an exchange, the tax on the exchange is deferred indefinitely.

1031 exchanges are authorized by Section 1031 of the Internal Revenue Code. Careful adherence to the requirements of Section 1031 is important in maintaining the tax-free status of the transaction. The sale of the relinquished property can qualify as a trade or exchange by means of an exchange agreement and the services of a qualified intermediary.

The rules require that the "Exchanger" use a safe harbor to hold the proceeds while the exchange is in progress, and spell out what those safe harbors are. The only practical safe harbor for most "Exchangers" is a "Qualified Intermediary." The rules also establish certain time limits and other requirements.

Lawyer's Equity Exchange is a qualified intermediary and is set up to assist you in making a smooth and easy exchange. An intermediary can guide you through the IRS's regulations, making a 1031 exchange easy, inexpensive and safe.

Step1
Consult with your tax and financial advisors to determine if a tax-deferred exchange is appropriate for your circumstance and compatible with your investment goals.

Step 2
Listing the Relinquished Property for sale with a licensed real estate broker. The exchanger will list the Relinquished Property with a real estate broker. The broker/agent will disclose the intent to complete an exchange in the listing agreement.

Step 3
Offer, Counter Offer and Acceptance. The Exchanger enters into contract with the Buyer for the sale/exchange of the Relinquished Property. The broker/agent discloses the Seller/Exchanger's intent to exchange into the Purchase Agreement and Receipt for Deposit.

Step 4
Open escrow for the Relinquished Property and coordinate with the facilitator. All earnest money deposits should be placed with the Escrow Company. The Facilitator prepares the exchange agreement and the necessary amendments and assignments and coordinates with the escrow holder. The close of escrow of the Relinquished Property and the receipt to the net proceeds by the Facilitator completes Phase I of a tax-deferred exchange. Important: The exchange documents must be in place and signed by all parties prior to close of escrow.

Step 5
Identify Replacement Property. The Exchanger must identify all Replacement Property within 45 days from the close of escrow of the Relinquished Property. The identification must be in writing, signed by the Exchanger and sent to the Facilitator by the 45th day.

Step 6
Contracting for the Replacement Property. After closing on the Relinquished Property the Exchanger has 180 days to acquire the Replacement Property. With the help of his/her agent the Exchanger enters into contract to purchase the Replacement Property from the Seller. In the contract to purchase the agent discloses the Exchanger's intent to complete the exchange and obtains the Seller's cooperation.

Step 7
Open escrow for the Replacement Property. The Facilitator prepares Phase II Exchange documents and coordinates with the Replacement Property Escrow holder. At the instruction of the Facilitator the escrow holder deeds the Replacement Property from the seller directly to the Exchanger. The funds held in trust by the Facilitator are places in escrow and the Facilitator purchases the Replacement Property from the seller. The transaction is closed as Phase II of a delayed exchange.

For additional information on tax deffered exchanges,
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