How the 1031 Exchange Process Works

real estate investment

1031 like-kind exchanges, or tax-deferred exchanges, must be facilitated by a Qualified Intermediary (QI) like 1031 Exchange Connection. When you hire us, we make the process simple. First, we'll analyze your situation to determine which type exchange will best suit your needs. Then, we'll walk you through each part of the transaction and will answer any questions along the way.

Below explains the basic 1031 exchange process. Other types of exchanges, such as reverse or construction, work a little differently. Call us at 239-659-1031 now or request your free consultation to learn more. Or, if you're ready you can start an exchange online now.

1. The Funds Are Wired to the QI

After closing, a QI must hold the cash between the sale of the old property and the buy of the new one. The exchanger cannot have access to the cash from their sale during the exchange period or the IRS could suspect that the cash is being used for other purposes. That's why we place your money in a segregated, or "non-commingled" account. We are bonded and insured to keep your money safe during the entire 1031 exchange period.

2. Your Have 45 Days to Identify the New Property

Starting from the day of closing on the relinquished property, the exchanger has 45 days to identify a list of up to three properties they would like to purchase as their replacement property. It is required that the purchase made includes at least one property on their 45 day list. The amount of that purchase should be greater or equal to the amount of the sale of the relinquished property in order to defer all capital gains tax from the sale.

3. You Have 180 Days to Close on the New Property

From the date of closing on the relinquished property the exchanger has 180-days to close, or get into title, on their new property. It is important to note that the person taking title to the new property must be the same person who held title to the old property. 

4. Finishing Up the Exchange

At the time of the closing, the QI is to receive a copy of the contract to purchase the replacement property and will provide any other necessary documents to be signed to close out the exchange. Prior to settlement, the QI is able to wire funds back to the exchanger so the purchase of the new property can be made.

5. Report the Sale to the IRS - Form 8824

In the year that the relinquished property was exchanged, the sale must be reported on IRS Tax Form 8824 'Like Kind Exchange'. The completed form should be attached to their tax return.