This checklist is intended to provide the taxpayer a brief overview of the IRC §1031 exchange process. This checklist does not address all exchange related issues. As a Qualified Intermediary, we must be independent, and we cannot provide tax or legal advice. We recommend that you consult with your CPA or tax attorney regarding the exchange.
- CONTACT LEGAL 1031: The Qualified Intermediary must be involved prior to the sale of the relinquished property. Contact Legal 1031 Exchange Services, LLC @ (877) 701-1031.
- REVIEW: Review the entire transaction with tax and/or legal advisors.
- SALE CONTRACT: Enter into an “assignable” contract to sell relinquished property and include a cooperation clause.
- PREPARATION OF RELINQUISHED PROPERTY EXCHANGE DOCUMENTS: Send a copy of the sales contract to Legal 1031. Legal 1031 will prepare the exchange documents necessary for the sale of the relinquished property. If any proceeds from the sale will not be used toward the purchase of replacement property that amount must be identified in the exchange documents. This amount will be considered boot and should be reported as income in the tax year it was received.
- EXECUTE EXCHANGE DOCUMENTS: Exchanger must sign all exchange documents and the purchaser of the relinquished property must sign the assignment agreement prior to the closing.
- RELINQUISHED PROPERTY CLOSES: Exchange proceeds are transferred from the closing via wire transfer or check to a separate segregated escrow account set up by Legal 1031. This starts the clock for 45-day and 180-day deadlines.
- IDENTIFICATION OF REPLACEMENT PROPERTY:The Exchanger has 45-days from the sale to identify replacement property, and up to a total of 180-days to close on identified property; or until the date their tax return is due, including extensions, for the tax year in which the earliest transfer occurred, whichever date is earlier. Prior to the end of the 45-day identification period, the Exchanger must complete and forward to Legal 1031, signed forms identifying the replacement property.
- PURCHASE CONTRACT:Enter into an “assignable” contract to purchase replacement property and include a cooperation clause. The taxpayer purchasing the replacement property must be the same taxpayer that sold the relinquished property.
- PREPARATION OF REPLACEMENT PROPERTY EXCHANGE DOCUMENTS: Send a copy of the purchase contract(s) to Legal 1031. Documents must be prepared for the replacement property prior to closing(s).
- EXECUTE EXCHANGE DOCUMENTS: Exchanger must sign all exchange documents and the seller of the replacement property must sign the assignment agreement. Executed documents must be sent to Legal 1031 prior to the closing.
- REPLACEMENT PROPERTY CLOSES: Inform Legal 1031 once the closing date is set. Complete a request for funds form with the date that the wire transfer or check request should be disbursed.
- COMPLETION: The exchange is complete if: 1) the Exchanger uses all exchange funds to acquire all properly identified replacement property; or 2) at the expiration of the exchange period. In order to report the exchange, your tax preparer should file an IRS Form 8824 with your tax return for the tax year in which you began your transaction.
Legal 1031 Exchange Services, LLC does not provide tax or legal advice, nor can we make any representations or warranties regarding the tax consequences of your exchange transaction. Property owners must consult their tax and/or legal advisors for this information. Our role is limited to serving as qualified intermediary to facilitate your exchange.
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