1031 Exchange Properties

[Kathryn Bogart]

Trying to understand how this works? Is there a simple way of explaining it? I googled it and got a link: http://www.atlas1031.com/1031-exchange-rules-requi...
Is there anything else I should know about it ?

Thank you. 

[Account Closed]

I'd think about this in terms of steps. This is a very basic example:

Step 1: You sell your investment property, say, a rental house for $500k. The proceeds go directly to a third-party qualified intermediary (I'll call that a QI). The link you posted is a QI service.

Step 2: You have 45 calendar days to give your QI a list of properties you *might* use the proceeds from step 1 to buy. Once 45 days pass, you're locked into this list.

Step 3: You have 180 days from step 1 to close on buying one (or sometimes more) of those potential replacement properties from step 2. Say, a rental duplex for $800k. Your QI wires $500k to the seller, and you pay the remaining $300k through cash or a loan.

It's important to have an adviser working for you in this process, because you can probably already see that it gets a lot more technical than this simple example. The adviser is usually best to be a CPA, but might also be your broker or real-estate lawyer. You shouldn't rely on your QI for tax advice though--they should be able to answer basic questions about the 1031 process, but a CPA who's familiar with your goals and circumstances is the best person to guide you through the process.

Hope this helps.