A 1031 exchange requires you to move all of the sales proceeds from your relinquished property over to your replacement property. You want to avoid receiving any of these funds during the process, because doing so will trigger taxable boot. So how to you ensure that your 1031 exchange funds are secure during your transaction? In this article, we are going to offer three tips for securing your funds in a 1031 exchange.
Separate Escrow Account
Working with a qualified intermediary is the best way to make sure your funds are safe and secure throughout the like-kind exchange process. Find a company that deals exclusively with 1031 exchanges. Your intermediary can set up a separate escrow account and have the net proceeds transferred into that account after the relinquished property closing. This is where the funds will remain until you are ready to acquire your replacement property.
Escrow Agreement
You should also have the bank enter into an escrow agreement with the intermediary that will lock down the funds unless you have co-authorization from you and the intermediary to withdraw.
Work with a Reputable Qualified Intermediary
Finally, you should make sure that your qualified intermediary has a Fidelity Bond and an errors and omissions policy so you have all of your bases covered.
Minnesota Exchanges of Real Property
CPEC1031, LLC works with clients in many different industries and states on their 1031 exchanges. Working with an intermediary on your exchange is one of the best ways to ensure a successful exchange. Our intermediaries have twenty years of experience facilitating exchanges in Minnesota and around the country. Contact us today to speak with one of our 1031 exchange professionals about your real estate exchange.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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