Is it Too Late to Start a Like-Kind Exchange if your Closing is Tomorrow?

Is it too late to do a 1031 exchange if my closing is tomorrow? Sometimes we get calls from people that are at the closing table doing a sit-down closing and then it occurs to them that they should do a 1031 exchange and they say "stop the presses everyone we've got to put this on hold so I can call my qualified intermediary!"

Jumping into Action

When that happens, we quickly prepare the 1031 documents and email them to the closing table so that we can have the documents signed concurrent with the transaction.

Restrictions

We can't, however, paper a 1031 exchange on a transaction that has already funded and closed. So can we stop the presses and put the closing on hold to get the 1031 documents put in place? Yes we can. Is that very irregular? Does it cause a lot of consternation and difficulty for the other parties involved? It is inconvenient to put everything on hold but that doesn't really matter when your taxes are on the line and you’ve got to figure out a way to defer those taxes.

Do we get calls at the last minute? Yes. but it's much better if you can have the forethought to get your 1031 exchange arranged, set up well in advance of closing, and even pre-sign your 1031 documents well before you transfer the benefits and burdens of ownership to your buyer.

A Word of Warning

Once the benefits and burdens of ownership have shifted; and the conveyance has taken place, and the buyer’s money has been paid to the title company, it is probably too late. For that reason, it's always a good idea to get out ahead as much as possible and give yourself plenty of time to complete your 1031 exchange so you're not scrambling at the zero hour.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

5 Tips to Prepare for Closing in a 1031 Exchange

The 1031 exchange process can be long and complex, but we're here to simplify things for you. In this article, we are going to talk about the 1031 exchange process - from preparation to the closing of the relinquished property.

Purchase/Sale Agreement for Relinquished Property

Complete your purchase/sale agreement as to your Relinquished Property (the property you are selling) just as you would with a regular sale. Show the name of the seller as yourself and add “and or assigns.” You should also add a cooperation clause to the purchase agreement, stating that you intend this transfer to be part of a 1031 Tax Deferred Exchange and require the buyer to cooperate. The cooperation clause serves to provide notice to your buyer that you intend to consummate a tax-deferred exchange, as required by the regulations.

Closing Company

Arrange for a title company or an attorney to close your transaction. Make sure you tell the closing agent that this transaction is going to be a 1031 exchange.

Exchange Company

Notify CPEC1031 of your pending sale and closing date. We provide a customer application form to organize all of the information about you as the taxpayer/exchanger, the property you are selling and the approximate date of closing. Fax the customer application form and the purchase/sale agreement to (612) 395-5475.

Closing on the Relinquished Property

CPEC will contact the closing agent and acquire any additional information needed to set up the 1031 Exchange for you. We will prepare the Exchange Documents and send two (2) sets of the documents directly to the closing agent. At closing, you will sign the Exchange Documents along with your other closing documents. The closing agent should give you one set of the documents for you to keep for your tax records and send one set to CPEC, together with a copy of the closing statement and deed transferring title to your Buyer.

Post Closing Activities

Once the closing is complete, the closing agent will wire transfer the proceeds into a separate, segregated and “two signature” FDIC insured exchange escrow account. Upon receipt of these funds and a set of the Exchange Documents, we will send you a letter showing the amount of proceeds we received in the wire, which amount should match the amount shown on the closing statement. This letter will also include the dates of the 45 and 180 day periods and a form to identify your Replacement Property (“timeframe letter”).

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved