EIGHT STEPS TO A SUCESSFULL 1031 TAX EXCHANGE

1.     TAX ADVISOR:  Always consult with your tax or financial advisor to determine if a tax-deferred exchange is appropriate for your circumstances and compatible with your investment goals.

Sale of the Investment property

2.      LIST YOUR PROPERTY: List the investment property with a licensed Real Estate Broker and include "intent to exchange" disclosure in the listing agreement.

3.       BUYER COOPERATION: In the purchase agreement for the Relinquished Property, have provisions included requiring the Buyer to cooperate with the exchange (at no expense to the Buyer).

4.       CHOOSE A FACILITATOR: Contact a Facilitator to prepare the exchange agreement, necessary amendments. and set up an escrow account. Contact me if you would like to use a facilitator in the Naples, Bonita Springs, Estero, or Ft. Myers area. REMEMBER, YOU CANNOT TAKE POSESSION OF THE PROCEEDS FROM THE SALE OF THE RELINQUISHED PROPERTY.

5.        RELINQUISHED PROPERTY CLOSING: All exchange documentation will be sent to escrow by Facilitator and must be executed (signed) by all parties to the transaction prior to transfer of the Relinquished Property to the Buyer.

NOTE: The close of escrow of the Relinquished Property and the receipt of the net proceeds by the Facilitator completes Phase I of a tax-deferred exchange.

THE REPLACEMENT PROPERTY

6.        IDENTIFICATION DEADLINE: Within 45 days from the close of escrow of the Relinquished Property, all "Like Kind" Replacement Properties must be identified and the Facilitator must be notified in writing. "Like Kind" means real estate for real estate. It can be land you sold and you are buying an apartment complex, commercial property for land etc.. The replacement property has to be of equal or greater value than the relinquished property  I recommend that you write a contract as soon as possible and have two back up properties.

7.        SELLER COOPERATION: In the purchase contract for the Replacement Property include provisions requiring the Seller to cooperate with the exchange (at no expense to the Seller).

8.        ACQUISITION DATE: Close on the Replacement Property within 180 days from the transfer of the Relinquished Property.  The Replacement Property must be acquired prior to filing your tax return for the year the Relinquished property was transferred.  An extension to your tax return may be necessary.

These are the very basics for a 1031 exchange. For an example and a more detailed analysis, click here.

IMPORTANT: To be fully tax deferred, acquire replacement property equal or greater in value, equity and debt(unless additional cash is added to offset debt relief).