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Setting up a 1031 Tax Exchange
In order to execute a successful 1031 exchange, there are a number of simple rules that must be followed. When setting up your 1031 exchange, be sure to remember the following:
- Identify the replacement property. There is a time limit of 45 days from closing on the relinquished property to identify a replacement property.
- Before you put the property under contract, find someone to act as a qualified intermediary, facilitator or accommodator. The intermediary is a neutral party taking possession of the proceeds from the sale and uses the funds to purchase the new property, then transfers title to you.
- Compare the services, costs, and references of several qualified intermediaries before selecting one to handle your 1031 exchange. The intermediary is an important part of your exchange, so it is important to find one that is reputable and trustworthy.
- Always stay in contact with your intermediary, keeping them update on all relevant dates and forwarding all relative paperwork to them.
- Be sure that your sale and purchase contracts contain wording that explicitly identifies your intention to perform a 1031 exchange.
- If you are using only part of your proceeds for a 1031 exchange, make sure your contract is worded to that effect. You may also want to talk to an accountant to find out how a partial exchange will impact your taxes.
- The closing date for the new property must take place within 180 days of the closing on the relinquished property.
As with any transaction, ask as many questions as necessary to make you feel comfortable with the exchange process. A 1031 exchange does not have to be difficult, but there are specific steps you must follow to make sure every aspect of the sale and purchase complies with tax law.
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