1031 Exchanges - Typical Exchange Chart
Here is an illustration of a typical Forward or Deferred type of 1031 Exchange.
Exchanger sells the relinquished property to Buyer. The deed is delivered directly from the Exchanger to the Buyer. However, the net proceeds from the sale are wired to the Qualified Intermediary.
Exchanger has 45 days from the date of the closing on the relinquished property to identify replacement property in writing.
Exchanger must close on all replacement property(s) and complete the exchange within 180 days from the sale date of the relinquished property.
The Three-Property Rule - Any three properties regardless of their market values.
The 200% Rule - Any number of properties as long as the aggregate fair market value of the replacement properties does not exceed 200% of the aggregate FMV of all the relinquished properties in the exchange.
The 95% Rule - Any number of replacement properties if the fair market value of the properties actually received by the end of the exchange period is at least 95% of the aggregate FMV of all the potential replacement properties identified.
Although the Regulations only require written notification within 45 days, it is recommended practice for a solid contract to be in place by the end of the 45-day period. Otherwise, a taxpayer may find himself unable to close on any of the properties which are identified under the 45-day letter. After 45 days have expired, it is not possible to close on any other property, which was not identified in the 45-day letter. Failure to submit the 45-Day Letter by the 45th day causes the Exchange Agreement to terminate and the Intermediary will disburse all unused funds in his possession to the taxpayer either after the 45th day or the 180th day depending on prior agreement.
Exchanger purchases the replacement property from Seller. The Qualified Intermediary wires the net proceeds to the closing to complete the purchase. Again, the deed is delivered directly from the Seller to the Exchanger.
We facilitate many other different and complex types of 1031 exchanges. Contact us with questions regarding the different types of exchanges.