1031 Timelines

1031 Timelines
Identification Period: Within 45 days of selling the relinquished property you must identify suitable replacement properties. This 45 day rule is very strict and is not extended should the 45th day fall on a Saturday, Sunday, or legal holiday.Exchange Period: The replacement property must be received by the taxpayer within the "exchange period," which ends within the earlier of . . . 180 days after the date on which the taxpayer transfers the property relinquished, or . . . the due date for the taxpayer tax return for the taxable year in which the transfer of the relinquished property occurs. This 180-day rule is very strict and is not extended if the 180th day should happen to fall on a Saturday, Sunday or legal holiday.
If you are considering a 1031 exchange please visit http://www.1031-nnn-properties.com/ for more in depth information on 1031 exchanges or to speak with an investment specialist about acquiring triple-net properties.

1031 Property Exchange – Investment Properties: 1031 Exchanges
If you are selling an investment property and planning on re-investing then the 1031 exchange is right up your alley. A 1031 exchange is basically a tax shelter allowed by the IRS where you sell an investment property and then re-invest the profit from that sale into another property. Now, keep in mind that you [...]

How to Initiate an Exchange
To initiate an exchange, the investor must decide that exchange must be made prior to closing of the relinquished property. The exchange agreement must be in place and delivered to all parties before the relinquished property transfer of title. There are several steps on how to initiate an exchange.

STEP ONE
First, you must find an experienced professional Qualified Intermediary to assist you with the exchange as early in the sale process as possible. In finding a Qualified Intermediary, you should consider that he/she is knowledgeable and experienced staff; the local assistance for your real estate agent, CPA and attorney; and especially the safety of your funds. You also require the Qualified Intermediary to provide fidelity bond insurance coverage.

STEP TWO
Instruct your real estate agent to include an Exchange Cooperation Clause as a supplement to the purchase and sale agreement on the relinquished property. An example of Exchange Cooperation Clause is when the buyer hereby acknowledges that it is the intent of the Seller to affect an IRC 1031 tax deferred exchange which will not delay the closing or cause additional expense to the buyer. The seller?s rights under this agreement may be assigned to Investment Property Exchange Services, Inc., a Qualified Intermediary, for the purpose of completing such an exchange. Buyer agrees to cooperate with the seller and Investment Property Exchange Services, Inc. in a manner necessary to complete the exchange.

STEP THREE
Contact your Qualified Intermediary as soon as possible after escrow is opened or after entering into the purchase and sale agreement and advise them of your intent to do an exchange well in advance of the closing date. The Qualified Intermediary will draft the appropriate Exchange Agreement, Assignments and Exchange Closing Instructions that must be executed prior to closing on the property being sold.

STEP FOUR
You must start searching for acceptable replacement property immediately to insure that you can meet the strict time frame for the 45-day identification period.
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Financing Properties
Mortgages for Financing Properties is a conditional conveyance of property as security for the payment of the loan or a method of using property whether it is a real or personal property for the payment of the debt. It refers to the legal device used in securing property, but it is also commonly used to refer to the debt secured by the mortgage, or the mortgage loan.

In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property such as ships, etc. and in cases only land may be mortgaged.
Arranging a mortgage is seen as the standard method by which individuals and businesses can purchase residential and commercial real estate without the need to pay the full value immediately.

Legal systems tend to share certain concepts but vary in terminology. In general terms, the main participants in a mortgage are creditor, the one that has legal rights to the debt secured by the mortgage and often makes a loan to the debtor of the purchase money of the property. Typically, creditors are banks, insurers or other financial institutions who make loans available for the purpose of real estate purchase. It sometimes referred to as the mortgagee or lender. In the other hand, the debtor must meet the requirements of the mortgage conditions by the creditor inorder to avoid the creditor enacting provisions of the mortgage to recover the debt. It sometimes referred to as the mortgagor, borrower, or obligor.

There are essentially two types of legal mortgage:

Mortgage by demise
The creditor becomes the owner of the mortgaged property until the loan is repaid in full known as redemption. This kind of mortgage takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption.

Mortgage by legal charge
The debtor remains the legal owner of the property, but the creditor gains sufficient rights over it to enable them to enforce their security, such as a right to take possession of the property or sell it.

To protect the lender, a mortgage by legal charge is usually recorded in a public register. Since mortgage debt is often the largest debt owed by the debtor, banks and other mortgage lenders run title searches of the real property to make certain that there are no mortgages already registered on the debtor's property which might have higher priority.
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1031 Reverse Exchange
A 1031 Reverse Exchange occurs when the taxpayer intends to make a like-kind exchange but it requires the replacement property before selling the relinquished property. The taxpayer may fear that replacement property is vital to his or her business and may be sold to another party.

You would consider a 1031 reverse exchange when you find a property you would like to acquire before you sell your current property, a Reverse 1031 exchange can save you thousands of dollars in capitals gain tax.

The IRS issued Revenue Procedure 2000-37 (Rev Proc) in September 2000 that gives taxpayers guidance on Reverse 1031 Exchanges. A ?Safe Harbor? Reverse introduces a new entity into the reverse process-an Exchange Accommodation Titleholder (EAT). An EAT is a single member limited liability company (LLC) established by a Qualified Intermediary (QI) for use specifically in a reverse exchange. It takes title to or a property for the tax payer and holds it until the taxpayer is able to sell the old property. A Revenue Procedure places a time restraint on the tax payer and the EAT must pass on the title on or before 180 days from the date of the EAT?s purchase. When the EAT parks the new property, a Revenue Procedure requires the taxpayer to identify their old property on or before 45 days from the EAT?s purchase.

The Revenue Procedure also refers to the fact that some reverse exchanges will fall outside of the ?Safe Harbor.? A ?Non Safe Harbor? Reverse will follow the guidelines outlined in Revenue Procedure and the exception of the 180 days requirement.

There are three types of 1031 Reverse Exchange namely the "Reverse regs." Exchange, "Biggs"(9) reverse exchange, and lastly the "Simple" reverse exchange. The first two types rely on an accommodator or intermediary who is hired to complete the exchange. The first transaction under these two approaches is the same. It is the separation in time between the first and second transaction that creates the deferred exchange. In a "simple" reverse exchange, the buyer serves a dual role, facilitating the transactions for the taxpayer and purchasing the relinquished property. Among the three types of 1031 Reverse Exchange, the "simple" reverse is the rarest of them all and it will most likely be the result of a simultaneous exchange caused to become undone.

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What kind of property can I use in a 1031 exchange?

The IRS has strict regulations regarding the property that you can use in a 1031 exchange. Over all of the details, however, is the general rule that you must exchange like-kind properties (e.g. real property for real property). You can exchange one property for several properties (or vice-versa), but they must be like-kind properties.

1031 exchanges are designed for investment or income-producing properties. In other words, you can exchange apartment and office buildings as well as farmland. In addition, you can exchange more abstract properties such as oil and gas interests, livestock, and leasehold interests. You can also exchange personal property.

On the other hand, you cannot exchange your personal residence because it is neither an investment nor income-producing property. You also cannot exchange inventory, stocks, bonds, notes, or securities. Finally, you cannot purchase a replacement property and then immediately sell it; wait at least a year before selling that acquisition.

About the Author:

Jeff Peterson (AKA: "Professor 1031") is a Qualified Intermediary and Serves as an Adjunct-Professor for the William Mitchell College of Law (Where He Teaches About Federal Income Tax). Jeff Works With People From All Over the USA to Save Money on Federal Capital Gains Taxes.

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