Like-kind exchanges vary on a case-to-case basis. Due to the wide range of complexity, the procedures for each case tend to differ. This page provides a glimpse at the basics of a simple 1031 exchange process with RI 1031 Exchange Company. If you are considering a 1031 exchange please contact us to discuss the details.
Step 1. Retain the services of a tax professional to determine if a 1031 exchange is appropriate for you.
Step 2. Reach out to us to discuss your particular case. As a Qualified Intermediary, we will review your sales agreement prior to your signing it to determine if requisite language is included for your 1031 exchange. An addendum may be necessary if the sales agreement has been signed prior to our review of it.
Step 3. Enter into a 1031 exchange agreement with us as your Qualified Intermediary, in which RI 1031 Exchange Company is named as principal in the sale of your relinquished property and the subsequent purchase of your replacement property. Normally the deed is still prepared for recording from the taxpayer to the true buyer. This is called direct deeding.
Step 4. We will work with the closing attorney to ensure the closing statement properly reflects the 1031 exchange, that RI 1031 Exchange Company was the seller, and the proceeds go to us as your Qualified Intermediary. The funds will be placed in a separate, completely segregated money market account to insure liquidity and safety. The closing date of the relinquished property, when the property changes hands from seller to buyer, is Day 0 of the exchange, and that is when the exchange clock begins to tick.
Step 5. We will provide you with written notice of the deadline (Day 45) and procedure for identifying replacement property, and the time frame for when the identified replacement property must be acquired by the taxpayer (within 180 days).
Step 6. The taxpayer sends written identification of the address or legal description of the replacement property to us, on or before Day 45 of the exchange.
Step 7. The taxpayer enters into an agreement to purchase replacement property. Again we will be sure to review the agreement for appropriate 1031 exchange language.
Step 8. When conditions are satisfied and prior to the 180th day, per the 1031 Exchange Agreement, we will forward the exchange funds to the closing attorney’s escrow account. We will send a final accounting to the taxpayer, showing the funds coming in from one closing, and going out to the other, all without constructive receipt by the taxpayer.
Step 9. The taxpayer files form 8824 with the IRS when taxes are filed.
