1031 Delayed Exchange Explained

A 1031 delayed exchange represents a simple, strategic method for selling one qualified property and the subsequent acquisition of another property within a specific time frame for the deferral of capital gain taxes. Any property owner should consider a Delayed Exchange for the sale of their existing property. To do otherwise would necessitate the payment of capital gain taxes in amounts that can exceed 20% to 30%, depending on the appropriate combined federal and state tax rates.

It also provides exchangers with more flexibility and options in acquiring the replacement property than the simultaneous exchange. The delayed exchange begins when the exchanger's first relinquished property is sold and is completed when the last replacement property is acquired within the prescribed exchange period. There are two basic aspects to a Delayed Exchange. First, the purchase price of the Replacement Property must be equal to or greater than the sales price of the Relinquished Property. Secondly, all equity received from the sale of the Relinquished Property must be used to acquire the Replacement Property.

Several Steps in a 1031 Delayed Exchange

• STEP 1: List your exchange property for sale with a licensed real estate broker.

• STEP 2: Begin your search for replacement property.

• STEP 3: Open escrow on the exchange property being sold and complete the exchanged information sheet which was given to you.

• STEP 4: Provide written notification of the properties you wish to identify, not later than 45 days following close of escrow on the first property sold.

• STEP 5: Notify immediately as soon as you open escrow on your replacement property.

 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved

The Deadlines of a Delayed 1031 Exchange

The delayed 1031 exchange is one of the most popular types of like-kind exchanges. As with any type of real estate exchange, you have to be aware of the deadlines and regulations required. In this article, we are going to discuss some of the deadlines you need to hit in order to execute a successful delayed exchange of 1031 property.

Delayed 1031 Exchange

A delayed 1031 exchange is perhaps the most common type of real estate exchange. It occurs when a taxpayer sells their relinquished property on one date, and then exchanges into their replacement property on another date.

45 Day / 180 Day Deadlines

In a delayed 1031 exchange (or any like-kind exchange, for that matter), there are certain time limits you need to abide by in order to complete a successful exchange. The most important time limit to remember is 180 days. After selling your relinquished property, you have 180 days total to complete your 1031 exchange. If your exchange goes beyond the 180th day, it will fail.

Furthermore, you have the first 45 of those 180 days to identify your replacement property or properties in writing.

1031 Qualified Intermediaries

If you are considering a delayed exchange, it is absolutely essential that you are aware of the deadlines and other requirements set out in the Internal Revenue Code.  This is where a qualified intermediary can be extremely helpful. There are many benefits to hiring a qualified intermediary at the outset of your 1031 exchange. An intermediary acts as an advisor and a facilitator throughout your exchange, and can insulate you from receiving any of the net proceeds from the sale of your relinquished property. Contact us today at our downtown Minneapolis office to discuss the ins and outs of your 1031 exchange.

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

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Why Delayed 1031 Exchanges are the Most Common

Many taxpayers who are considering a 1031 exchange wonder why most people structure their transactions as delayed 1031 exchanges. That's our topic for this article.

Pre-1991

Back in the pre-1991 days, many people were doing exchanges as simultaneous horse swaps, where one taxpayer exchanged directly with another taxpayer. The two would basically simultaneously swap the same types of properties. That works great if you want the property the other guy has, and the other guy wants the property that you have. But if each taxpayer doesn’t have the exact same property that the other wants, it doesn't work.

Benefits of a Delayed Exchange

In a delayed exchange you can sell your relinquished property to one party that wants your property and then later (up to 180 days later) purchase your replacement property from someone completely different. So the great advantage of doing a delayed or deferred exchange is that you have time and flexibility to purchase your replacement property from somebody different than the party that you sold your relinquish Property to.

Be sure to set-up your delayed exchange with a qualified intermediary BEFORE you close or dispose of your old relinquished property because you need to insulate yourself from receiving the sales proceeds and also comply with certain 1031 rules and regulations in order to have a valid delayed exchange such as:

1. having a signed exchange agreement with the qualified intermediary;

2. giving certain required notice to the other parties to your sale and purchase contracts, identifying in writing within 45 days what replacement properties you want to receive, and completing your exchange within 180 days or the due-date of your federal tax return for the year in which your relinquished property is sold.

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

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved