How to Get an Exchange Started

A 1031 exchange, also known as a like-kind exchange or tax deferred exchange, is where real property that is “held for productive use in a trade or business or investment” is sold and the proceeds from the sale are reinvested into a like-kind property intended for business or investment use, allowing the taxpayer, or seller, to defer the capital gains tax and depreciation recapture on the transaction.

The property sold as part of a 1031 exchange is the Relinquished Property. The property purchased is the Replacement Property. The real property in a 1031 exchange must be like-kind; most real estate is like-kind to all other real estate. For example, an office building could be exchanged for a rental duplex, a retail shopping center could be exchanged for farmland, etc.

A requirement to achieve a valid 1031exchange is that the Exchanger must avoid having actual or constructive receipt of the exchange funds. One way to accomplish this is to retain a Qualified Intermediary to satisfy the “safe harbor” requirements under Treasury Regulation 1.1031(k)-1(g)(4). The Qualified Intermediary must not be a “disqualified person” as defined in the 1031regulations. Examples of parties disqualified to serve as a Qualified Intermediary include parties related to the exchanger which are defined in sections 267(b) and 707(b)(1) of the Internal Revenue Code (e.g. ancestors, lineal descendants, siblings, spouses and related entities) as well as agents of the exchanger.

Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality.

Real properties generally are of like-kind, regardless of whether they’re improved or unimproved. For example, an apartment building would generally be like-kind to another apartment building. However, real property in the United States is not like-kind to real property outside the United States.

Below is a simple guide that can help determine if your situation qualifies for a 1031 exchange and if a 1031 exchange seems like the best option for your upcoming real estate transaction.

Do you, or your entity, pay US taxes? If yes, then you are eligible for a 1031 exchange.

Is the property you are selling “real property” that has been held for business or investment use? If yes, then the property should qualify for a 1031 exchange.

Contact Rodeo Exchange by calling 310-670-3800 or emailing info@rodeo1031.com to start an exchange and obtain a forward exchange document package. Exchange document package includes items listed below.

Gather Exchange Documents – This Includes:

It’s important to note that there is currently no federal regulation of qualified intermediaries. However, with the help of the Federation of Exchange Accommodators (FEA), several states have begun taking the lead in assuring higher professional standards for QIs. Some of the newly enacted requirements (which can vary from state to state) include:

· Qualified escrow and/or trust accounts for client funds

· Fund withdrawal authorization requirements

· Minimum bond and insurance requirements