The 1031 Exchange process can be complex and stressful. IRS exchange rules are very rigid, and the 1031 exchange timeline must be strictly followed in order to qualify for tax deferral. Finding, vetting, and acquiring suitable exchange replacement property that best aligns with your financial and lifestyle goals can also be challenging and time-consuming.
Many 1031 Exchange companies support only a few steps in an exchange transaction. As a fully-integrated 1031 Exchange advisor, Real Estate Transition Solutions guides your through the entire process – from helping you determine if a 1031 exchange is right for you, to finding, selecting and acquiring suitable replacement property to ensuring you understand Exchange processes and rules.
The 1031 Exchange Timeline
There are three very important dates to consider with a 1031 Exchange timeline. When the relinquished property closes, the person conducting the exchange has 45 days to identify their potential replacement properties. In total one has 180 days to acquire the replacement property. Your exchange is completed in 180 days.
Day 01: Sell Existing Property
Close on your existing property and start looking for a replacement property.
Day 45: Identify Replacement Property
Within 45 days after closing on your relinquished property, you must identify your replacement property.
Day 180: Close on Replacement Property
Within 180 days after closing on your relinquished property, you must close on your replacement property.
8 Key Steps in the 1031 Exchange Process
Tax-deferred 1031 Exchanges present a tremendous opportunity for real estate investors selling their investment property. However, the Exchange process can be complex, and a misstep can result in either a failed 1031 Exchange or the purchase of replacement property that is not suitable for the real estate investor.
As your 1031 Exchange Advisor, Real Estate Transition Solutions will not only help you find, select and acquire suitable 1031 Exchange replacement properties throughout the U.S., but will also work closely with you to guide you through the entire Exchange process, timing, and rules. Below is our 8-step process for performing a successful 1031 Exchange.
1. Determine if a 1031 Exchange is Right for You.
Although there are clear benefits associated with 1031 Exchanges, it is important to make sure a 1031 Exchange is right for you. There are a number of factors that should be discussed and considered including property ownership structure, potential tax liability, liquidity needs, financial and lifestyle objectives, market timing, and debt considerations.
The easiest way to determine if a 1031 Exchange is suitable for you is to schedule an informal, complimentary consultation with one of our 1031 Exchange advisors at Real Estate Transition Solutions. This can be done via phone or in person at our office.
2. Work with Your 1031 Exchange Advisor to Develop a Tax-Deferred Transition Strategy.
The timeline associated with a 1031 Exchange is very rigid. That’s why it is imperative to have an achievable transition plan in place before your investment property is placed on the market to be sold. Proper planning can eliminate many issues that might serve to derail a 1031 Exchange once the property is under contract or sold. As your 1031 Exchange Advisor, Real Estate Transition Solutions will evaluate every option within the context of how it fits with your objectives and will dig deep into your transaction and property to ensure that all potential roadblocks are discussed and addressed before the sale process begins.
3. Inform Your Tax Advisor, Estate Planning Attorney, and Financial Advisor about your 1031 Exchange.
It is always a good idea to speak to your CPA, Estate Planning Attorney and Financial Advisor to ensure they are aware of your intent to perform a 1031 Exchange and can plan accordingly.
Your 1031 Exchange Advisor at Real Estate Transition Solutions will work with your other advisors to ensure they understand the mechanics of 1031 Exchanges, the transition strategy, and will be available to answer any questions your other advisors may have.
4. Enter into a Contract to Sell Your Existing Investment Property.
Select a competent realtor/broker to market your existing investment property (referred to as Relinquished Property) and to represent you in the sale. We have worked extensively with many realtors and brokers and are happy to provide you with a referral.
5. Select a Qualified Intermediary and Open an Exchange.
Once your relinquished property is under contract, the next step is to a select and OPEN the Exchange with a Qualified Intermediary. Required by the IRS for a valid Exchange, a qualified intermediary (also known as a “facilitator” or “accommodator”) is the entity that receives the sales proceeds upon the sale of your relinquished property, holds onto the proceeds while your Replacement Property is identified, and releases the funds to acquire the 1031 Exchange replacement property. Thus, preventing you (the Exchanger) from taking “constructive receipt” of the sales proceeds which would invalidate the Exchange. Note – the Exchange must be opened with your qualified intermediary BEFORE the close of the sale of your relinquished property. Your 1031 Exchange Advisor can provide you a list of qualified intermediaries to choose from.
6. Identify Your 1031 Exchange Replacement Property (45-Day Rule).
The 45-Day Rule requires that your replacement property be identified within 45 days of the close of your relinquished property (by calendar day 45, your qualified intermediary must be notified of the identified replacement property).
As your 1031 Exchange Advisor, Real Estate Transition Solutions will help you identify and select suitable replacement Property. We have a rigorous process in place to vet not only the replacement property options but also the investment firms sponsoring and managing those property replacement options. Note – While you do not need to acquire all the property identified, you cannot acquire any property not named on the identification in place on day 45. There are also certain IRS mandated identification rules that must be adhered to in order to qualify, which we will make sure you are fully aware of.
7. Close on the Sale of Your 1031 Exchange Replacement Property (180-Day Rule).
Another important milestone within the 1031 Exchange timeline is the 180-Day Rule. Within 180 days after closing on your relinquished property (135 days following the end of the identification period), you must close on the purchase of your replacement property.
As your 1031 Exchange Advisor, will will oversee the closing of your replacement property from start to finish. Note – should your Exchange cross over from one calendar year to the next, you must not file your previous year’s taxes until the Exchange is completed as you cannot amend a tax return to include an exchange. Instead, an extension must be filed so that the taxes are completed following the exchange.
8. After the Exchange is Complete, Notify Your Tax Advisor
Let your tax advisor know that you have performed a 1031 Exchange during the tax year so that the property tax forms can be prepared. Again – do not file your annual taxes for the year in which the relinquished property was sold until the 1031 Exchange is complete.
Is a 1031 Exchange Right for You?
Why Real Estate Transition Solutions?
To ensure your 1031 Exchange is strategic and successful, it is essential to work with a highly respected 1031 company that will help you navigate the complex process of understanding, vetting, and acquiring 1031 Exchange property that will meet both your financial and lifestyle objectives. For over 20 years, the team at Real Estate Transition Solutions has helped investment property owners perform successful 1031 Exchanges by developing and implementing well-planned, tax-efficient transition strategies.
Real Estate Transition Solutions will not only help you find, select and acquire suitable 1031 Exchange replacement properties throughout the U.S., but we will also work closely with you to guide you through the entire Exchange process, timing, and rules.