Forward 1031 Deferred Exchanges

How do simple forward 1031 exchanges work?

Individual or multiple properties may be exchanged as part of a 1031 tax deferred exchange or like-kind exchange transaction. An exchange agreement between the taxpayer and the qualified intermediary (QI) must be set up prior to any sales transaction.  The first part of the exchange occurs when the taxpayer assigns their rights to sell the relinquished property to the QI.  Upon the sale of the relinquished property, the proceeds are held by the qualified Intermediary in an exchange account as the taxpayer cannot receive any proceeds from the sale of the relinquished property either actually or constructively.

The next portion of the exchange involves the identification and purchase of 1031 replacement property.  Specific requirements defined in section 1031 include a 45-day identification period and a 180-day period in which to close on a replacement property, which run concurrently beginning on the date the relinquished property is sold.

Once a replacement property is selected, the rights to acquire that property are assigned to the QI.  The funds held in a taxpayer’s exchange account would be sent by the QI directly to the closing for the purchase of the replacement property.

Please download our step-by-step 1031 forward exchange whitepaper for detailed information about how to complete a 1031 exchange.

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