1031 Exchange Step-by-Step

I'm going to take this from the beginning. It's pretty easy, and when you're finished here you can go directly to our "Setup an Exchange" page, fill in the form, and we'll take it from there. All of the documents you'll need to sign will be sent directly to the closing agent. If you give us your E-mail address we'll keep you posted on our progress.

So here we go:

PHASE I

Do some planning first, read our "1031 Procedure Manual", talk with your tax advisor (before you do the exchange), calculate your tax exposure with our "Capital Gains Estimator" to determine if this exchange is practical. Then proceed, you don't have to have your replacement property selected at this stage.
Complete your purchase & sale agreement just as you would with a regular sale. We suggest that you add a phrase similar to the "Suggested Earnest Money Clause" at the back of our procedure manual.
When your agreement is fully signed you'll need to take it to the closing agent. (We call this step Opening Escrow). Make sure you tell the closing agent that this transaction is going to be a 1031 exchange. If you're using a real estate agent, they will do this for you.
Then, notify us about who is doing the closing. We'll need the name & phone number of the closing agent, company, and the file number (sometimes called an escrow number). This information can be sent to us by adding it to the "Setup an Exchange" form, or by Fax, E-mail, or Telephone.
We'll then contact the closing agent, get any additional information we need, set up an Exchange file for you, process the 1031 Exchange documents, and send the documents directly to the closing agent. The closing agent will take it from there, and you can sign the exchange documents along with your other closing documents.
After the exchange sale is complete the closing agent will wire transfer the proceeds into our trust account. Upon receipt of these funds, and a copy of the final closing statement, we will send you a letter showing the amount of proceeds we received (this should be the same as the amount shown on the bottom of your closing statement). This letter will also include the dates of the 45 & 180 day periods, and a form to identify your replacement property.

This is the end of Phase I. - You are now in the 45 day identification period.

PHASE II

Before the end of the 45-day identification period, send us a list of the replacement property you wish to identify. This can be on the form we supplied, or on any other similar written document. You can mail, E-mail, or Fax it to us. Make sure it's fully signed by each named "Exchanger".
Write & sign your purchase & sale agreement(s) adding the "Exchange Clause" as you did in the first transaction. Again open escrow as you did in the first transaction; notify the closing agent that this transaction is a 1031 exchange, and that we are your Qualified Intermediary. The closing agent/company does not have to be the same one that closed the relinquished property.
Again, notify us as to who the closing agent is. Also tell us how much of your proceeds you want to use on this transaction, and approximately when your purchase will close.
We will then contact the closing agent, get any additional information we need, and send the exchange closing documents directly to the closing agent. After the closing documents have been signed by all parties, the closing agent will send us signed copies, and we will wire transfer the proceeds into escrow. The closing can then be recorded, and you have completed your exchange.
The closing agent should give you copies of all the documents, including the exchange documents used in your transaction. When you have closed on the last identified property, or at the end of the 180-day period, your exchange ends and we will return any unused proceeds. You should try to use all of your proceeds, the returned proceeds are referred to as "boot" and are taxed on their full amount.
When you file your taxes the form you will use to report your exchange is: IRS form 8824 "Like-Kind Exchanges".