1031 exchange

9 Steps to a 1031 Exchange

Nine Steps to a Successful 1031 Exchange

  1. TAX ADVISOR: Talk with a professional tax or financial advisor to find out if a tax-deferred exchange is appropriate in your financial situation and investment goals. You are allowed to defer all taxes from capital gains if you sell one property and reinvest in another. It’s best to work with an advisor who has been involving with several clients who have benefitted from 1031 Exchanges.


  1. LIST PROPERTY: List the relinquished property with a licensed Real Estate Broker and include an “intent to exchange” disclosure in the listing agreement. Under a new law passed in 2017, only real estate qualifies for a 1031 exchange, as personal property no longer qualifies. The properties to be exchanged should be of similar values to maximize the benefit of the exchange.3. BUYER ACKNOWLEDGMENT: In the purchase agreement for the Relinquished Property, make sure you include provisions informing the Buyer of the Seller’s intent to exchange. At this stage the Buyer agrees to hold the Seller harmless from any and all claims and liabilities associated with the exchange.

    4. QUALIFIED INTERMEDIARY: When escrow is opened on the Relinquished Property, All Property Title will assist you in working with a “Qualified Intermediary” to hold the funds throughout the exchange process. It’s essential to work with a carefully-chosen Qualified Intermediary to ensure that all required documentation is presented properly and accurately.

    5. RELINQUISHED PROPERTY CLOSING: All exchange documentation will be sent to escrow and must be executed prior to the transfer of Relinquished Property to the Buyer. From the time of closing on the Relinquished Property you have 45 days to nominate the three potential Replacement Properties, in which you intend to purchase one of them within 180 days.


    6. IDENTIFICATION DEADLINE: Within 45 days of the close of the Relinquished Property be sure to notify the qualified intermediary in writing of “Like-kind” Replacement Property. The phrase “Like-kind” allows for a 1031 exchange between a variety of different property types, such as a park or a building with a strip mall.

    7. SELLER ACKNOWLEDGMENT: In the purchase agreement for the Replacement Property you must use provisions informing the Seller that the Buyer is completing an exchange. This acknowledgment indicates that the two parties have a binding agreement. This stage is equivalent to a handshake.

    8. REPLACEMENT PROPERTY: Notify All Property Title and your qualified intermediary when you open escrow on the Replacement Property. All exchange documentation will be sent to escrow for your execution. You must designate the property you want to acquire at this stage, with the understanding that you intend to acquire at least one of three potential Replacement Properties.

    9. ACQUISITION DATE: You must close escrow on the Replacement Property within 180 days from the transfer of the Relinquished Property. The 1031 Exchange process requires that you first acquire your Replacement Property prior to filing your tax return for the year the Relinquished Property was transferred. An extension to your tax return may be necessary. Keep in mind that if cash is exchanged, it’s known as “boot” and is treated as a capital gain, so it is taxed as partial sales proceeds.

    In order to be fully tax-deferred, you should acquire replacement property equal to or greater in value, equity and debt, unless additional cash is added to offset debt relief. When done properly through a third party exchange, equity will smoothly transfer from one investment into another. A 1031 Exchange does not avoid tax, it merely defers tax payments to later dates, while allowing you to exchange multiple properties.

If you have more questions relative to setting up a 1031 Exchange or would like assistance in closing please contact brian@allpropertytitle.com.