1031 Exchanges - Part 2
1031 Exchanges - Part 2
The accommodator guides the process and handles all the documents to enable the qualification, but they must be totally independent: They can not provide tax, legal, or financial advice to you. You will recall that I stated in my prior article that you should consult with your tax accountant and attorney throughout this process.
There are timing rules that must also be met or the exchange could be disqualified, and you will owe the appropriate tax on the gain.
Here is an example of how the transaction would work:
Prior to closing on the sale of the relinquished property, an exchange agreement needs to be signed with the Accommodator. For my example Benchmark Title will be designated as the Accomodator.
At the closing of the sale, the net proceeds are immediately handed over to Benchmark Title as the accommodator and are held for the seller. Those funds can be invested in a separate account to earn interest for the benefit of the seller.
From the closing date the seller has 45 days to identify the replacement property and notify Benchmark, in writing, of the property identified (up to three properties may be identified). The seller must close on the purchase of the replacement property within 180 days. Holidays and weekends count as days and there is no variation from those timing issues. You can use fewer days than stated, but if you go over, the exchange will be disqualified and you will owe the appropriate tax.
In summary, you have sold one property, purchased another of equal or greater value and never touched the proceeds and any capital gain on the sale is tax deferred to a later date. Remember, it is a Tax Deferred exchange transaction approved by the IRS, not a TAX FREE exchange.
More to follow with a Q&A section on this very interesting
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