Obtaining tax deferral via a 1031 Exchange transaction requires planning, expertise and support. The use of a Qualified Intermediary familiar with 1031 exchanges is requierd. Although a Qualified Intermediary, provides a lot of information about like kind exchanges, they do not provide legal or tax advice. They will also prepare the documentation for the 1031 Exchange, and, most importantly, safeguard the exchange funds. Laying the proper groundwork before entering into an exchange will avoid unnecessary obstacles and lead to a smooth transaction.
STEP 1. Instruct your real estate agent or attorney to include a “1031 Exchange Cooperation Clause” in the purchase and sale agreement. .
STEP 2. Engage your legal and tax advisors to determine if you would benefit by structuring your transaction as a 1031 Exchange.
STEP 3. After the contract is signed contact the Qualified Intermediary along with your agent will answer your questions and prepare the documents that need to be signed prior to closing.
STEP 4. Inform your Qualified Intermediary and agent if you plan to 1) use Exchange Funds to make improvements to the new Replacement Property, or 2) acquire the new Replacement Property before you sell your old Relinquished Property.
STEP 5. Start searching for Replacement Property! Once you close on your old Relinquished Property the clock starts ticking and you only have 45 days to identify your new Replacement Property.
Information derived from an article issued by IPX1031, a Qualified Intermediary.