How Does A 1031 Exchange Begin?

If you are an investor who is considering selling one piece of investment or business property and want to defer capital gains, you may have considered a 1031. If this is your first exchange, you may be wondering how to proceed.

Although there is no specifically prescribed procedure to initiate a 1031 exchange, it usually begins with a consultation with your financial or legal advisor. Thereafter, to formally engage in a 1031 exchange and comply with stringent IRS rules, you will need to engage a qualified intermediary who will act as the disinterested third-party to hold the sale proceeds during the duration of the exchange.

The Qualified Intermediary’s primary responsibility is to handle the money involved in the exchange. The Qualified Intermediary receives the funds from the sale of your relinquished property and holds these funds in escrow until they are needed to purchase the replacement property. The Qualified Intermediary is also responsible for completing all necessary IRS tax forms, and ensuring compliance with all IRS rules and regulations.

The IRS is very liberal when defining who can act as a Qualified Intermediary. However, the Qualified Intermediary cannot have a family relationship with the exchanging investor or have had a business relationship with the exchanging investor prior to the transaction.

To learn more about 1031 exchanges or our qualified intermediary and replacement property locator services, please visit our website.