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DELAYED
EXCHANGE
Delayed exchanges, also
known as a forward exchange, have been permitted since a
series of court decisions in the late 1970s known as the
Starker decisions. Delayed exchange procedures have
evolved over the intervening years into a very
streamlined and efficient method for deferring taxation
when qualifying property is sold and the proceeds
re-invested in like kind property.
Most delayed exchanges
involve a
third party intermediary, such as 1031 Exchange
Corporation, to facilitate the exchange. The IRS has
published safe harbor guidelines for delayed exchanges
using an intermediary. This means that the
exchange will not be challenged if the guidelines are
followed.
Under the safe harbor rules,
it is no longer necessary for title to exchanged
property to pass through the intermediary. Title
can pass directly an exchanger to a buyer or from a
seller to the exchanger. This greatly simplifies
the closing process.
There are two phases in a
delayed exchange. During the first phase, the
relinquished property is sold. The second phase
involves purchasing replacement property. The
procedure for each phase is as follows.
SELLING
RELINQUISHED
PROPERTY.
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You sign a contract to
sell the relinquished, preferably with contract
terms requiring the buyer to cooperate in the
exchange.
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You ask 1031 Exchange
Corporation to serve as intermediary and assist in
the exchange.
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You provide us with a
copy of the contract to sell and notify us of the
location and proposed date of the closing.
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We review the contract
and obtain other required information from the title
company or attorney closing the sale.
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1031 Exchange
Corporation prepares all necessary exchange
documents.
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You sign the exchange
documents and 1031 Exchange Corporation closes on
the purchase of the relinquished property and
instructs the closing agency to deed the property
directly from you to the purchaser.
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We direct the closing
agency to send all proceeds of sale directly to 1031
Exchange Corporation to be held pending the purchase
of replacement property.
BUYING
REPLACEMENT
PROPERTY
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You have 45 days from
the sale of relinquished property to identify
replacement property and 180 days from the sale of
relinquished property to close the purchase.
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You sign a contract to
buy replacement property, preferably with
contract terms requiring the seller to cooperate in
the exchange.
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You notify us of the
contract and provide a copy of the contract.
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We obtain other required
information from the title company or attorney
closing the purchase.
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1031 Exchange
Corporation prepares all required exchange
documents.
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You sign the exchange
documents. We instruct the closing agency to
have the replacement property deeded directly from
the seller to you.
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We transfer your
exchange funds to the closing agency and provide an
end of transaction accounting of all funds.
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