Can I be my own “Exchange Agent/Intermediary”?

No. In addition, your agent (including your real estate agent or broker, investment banker or broker, accountant, attorney, employee or anyone who has worked for you in those capacities within the previous two years) cannot act as your facilitator either. However, Brazos 1031 would be happy to help you.

Can these time limits be extended?

No, except in cases of Presidentially-declared disasters. Of course, we would not recommend banking on one of those to occur.

How much time do I have to complete the exchange?

There are 2 time limits that apply. First, you have 45 days from the date you sell the relinquished property to identify potential replacement properties.

Second, the replacement property must be received and the exchange completed no later than 180 days after the sale of the exchanged property or the due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier.

What types of property cannot be exchanged?

Section 1031 does not apply to exchanges of:

  • Inventory or stock in trade
  • Stocks, bonds, or notes
  • Other securities or debt
  • Partnership interests
  • Certificates of trust

 

Can I use a 1031 exchange to buy property in another country?

No. Property in foreign countries is not considered “like-kind” to property owned in the United States.

What does “like-kind” mean?

Like-kind property is property of the same nature, character or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate. In personal property exchanges, the rules pertaining to what qualifies as like-kind are more restrictive than the rules pertaining to real property. As an example, cars are not like-kind to trucks.

What property qualifies for a 1031 Exchange?

Both the relinquished property you sell and the replacement property you buy must meet certain requirements.

  • Both properties must be held for use in a trade or business or for investment. Property used primarily for personal use, like your home or vacation homes, does not qualify.
  • The properties exchanged must be “like-kind”.

 

How to Begin the Process of a 1031 Exchange

In order to start a 1031 exchange, you need to take a few steps.  The most important is you need to hire an exchange agent prior to your first closing.  In fact, ideally your exchange agent will be consulted prior to even signing the first contract (whether buying or selling).

For the property you are selling, you will want to include some language about your use of a 1031 exchange in the earnest money contract.  This contract language is called the “cooperation clause.”  For example, to use Brazos 1031 Exchange Company, you should include the following language:

“The Buyer acknowledges that it is the intention of the Seller to effect an IRS Section 1031 Tax-Deferred Exchange and that the Seller’s rights under this agreement shall be assigned to Brazos 1031 Exchange Company, LLC, to facilitate such exchange. Buyer agrees to cooperate with the Seller and/or its assigns in a manner necessary to enable the Seller to initiate said exchange at no additional cost or liability. “
Similarly, for the property you are buying, you will need to include the following language:
“The Seller acknowledges that it is the intention of the Buyer to complete an IRS Section 1031 Tax-Deferred Exchange and that the Buyer’s rights under this agreement shall be assigned to Brazos 1031 Exchange Company, LLC, for the purpose of completing such exchange. Seller agrees to cooperate with the Buyer and/or its assigns in a manner necessary to complete said exchange at no additional cost or liability. “
If you forgot to include this language in the contract, it is okay.  You can still do a 1031 exchange, but you will need the opposing party to agree to sign some paperwork related to your 1031 exchange.  It is better practice to include the Cooperation Clause so that it is part of the bargain and the opposing party is agreeable at the outset.
If you need help with a 1031 exchange, contact us through our online contact form.

What is a Reverse Exchange?

Just like it’s name sounds, a Reverse Exchange is the opposite of a Deferred Exchange. It involves the acquisition of replacement property (the new property) through an exchange accommodation titleholder, with whom it is “parked” for no more than 180 days. During this 180 day period, the taxpayer disposes of its relinquished property (the old property) to close the exchange. Basically, in this form of exchange you are buying the new property before selling the old property. Like the Deferred Exchange, the taxpayer enters into a contract with an exchange facilitator (like Brazos 1031) and follows the strict requirements of the IRS rules.

What is a Deferred Exchange?

A Deferred Exchange is a more complex, yet more flexible, variation of the typical 1031 Exchange. A Deferred Exchange allows you to dispose of property and subsequently acquire one or more other like-kind replacement properties. To qualify as a Section 1031 exchange, a deferred exchange must be distinguished from the case of a taxpayer simply selling one property and using the proceeds to purchase another property (which is a taxable transaction).

In a Deferred Exchange, the disposition of the relinquished property (which is being sold) and acquisition of the replacement property (the property being bought) must be mutually dependent parts of an integrated transaction. What this means is that the taxpayer will enter into an exchange agreement or contract using an exchange facilitator (like Brazos 1031) to both sell their property and acquire the new property within the IRS rules governing 1031 exchanges. If this is done correctly, the Deferred Exchange qualifies as a 1031 exchange.

At Brazos 1031 Exchange Company, we act as qualified intermediary / exchange accomodator for real estate investors and companies doing 1031 real estate exchanges throughout Texas.