The Exchange

There are at least three transactions in a 1031 Exchange.

  1. The Investor and Buyer contract for the sale of the relinquished property "A."
  2. The Investor and Seller contract for the sale of acquired property "B."
  3. Between the Investor  and a Qualified Intermediary an  agreement is signed.   Basically, this  agreement will  assign the property to be relinquished to the intermediary, so the intermediary can complete  the sale with the buyer. Upon completion of the relinquished property  sale, the intermediary then holds funds until the investor requests those funds be used to complete  the separate purchase (acquiring) of new  investment property. Upon completion of that acquisition sale, the intermediary then assigns the acquired property back to the investor per their original agreement.

The investor does not "handle"  any of the exchange funds in a 1031 transaction, because if the seller "touched" those fund he would immediately be liable for the taxes.   This is why the intermediary is there, to "hold" the funds during the exchange so the properties can transfer without the immediate tax liablity. Since the whole process is very specifically defined by the IRS, it deserves the very special attention and effort of only the most professional intermediaries and Realtors.


For more information please consult your tax professional.

  1. 1031 Exchange - Main Page
  2. Rate Your Investment Properties
  3. Key Points to a 1031 Exchange
  4. The Meaning of "Like Property"
  5. The Exchange

All information believed accurate but not warranted.




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