Interested in Exchange?
You will need a Qualified Intermediary (Q.I.) to proceed with a 1031 Exchange.
To qualify for Section 1031 of the Internal Revenue Code, the properties exchanged must be held for productive use in a trade or business or for investment. Stocks, bonds, and other properties are expressly excluded by Section 1031, though securitized properties are not excluded. The properties exchanged must be of "like kind."
Qualified Intermediary
We act as the independent third party that holds proceeds and facilitates your exchange to keep it compliant.
Defer Capital Gains
Properly structured, a 1031 exchange lets you defer recognition of capital gains taxes otherwise due on sale.
Guided Process
From identification through closing, we help you meet the 45- and 180-day deadlines of Section 1031.
What is a 1031 Exchange?
Under Section 1031 of the United States Internal Revenue Code (26 U.S.C. § 1031), the exchange of certain types of property may defer the recognition of capital gains or losses due upon sale, and hence defer any capital gains taxes otherwise due.
In 1979, this was expanded by the courts to include non-simultaneous sale and purchase of real estate.
The Order of a Typical 1031 Exchange
The following sequence represents the order of steps in a typical 1031 exchange.
Retain the services of Investors Choice Exchange (ICE)
Engage ICE as your Qualified Intermediary before your sale closes.
Sell the property with the Cooperation Clause
Make sure your escrow officer / closing agent contacts ICE to order the exchange documents.
Enter into a 1031 exchange agreement
ICE is named as principal in the sale of your relinquished property and the subsequent purchase of your replacement property. An amendment to escrow names ICE as seller, while the deed is still prepared from the taxpayer to the true buyer (direct deeding). The replacement property need not be identified at this time.
The relinquished escrow closes
The closing statement reflects the Qualified Intermediary as seller, and proceeds go to your Qualified Intermediary into a separate, segregated money market account for liquidity and safety. This closing date is Day 0 — the exchange clock begins. Identification must be sent within 45 days; the replacement property acquired within 180 days.
Identify the replacement property (by Day 45)
Send written identification of the address or legal description to the Qualified Intermediary on or before Day 45. It must be signed by everyone who signed the exchange agreement, and is best sent via certified mail, return receipt requested.
Agree to purchase the replacement property
An amendment names the Qualified Intermediary as buyer, but deeding is from the true seller to the taxpayer.
Close prior to the 180th day
The Qualified Intermediary forwards the exchange funds and gross proceeds to escrow, and the closing statement reflects the QI as buyer. A final accounting is sent to the taxpayer — funds coming in from one escrow and out to the other, all without constructive receipt by the taxpayer.
File IRS Form 8824
The taxpayer files Form 8824 with the IRS at tax time, along with whatever similar document your particular state requires.
A note on "Boot"
Although not used in the Internal Revenue Code, the term "Boot" is an old English term meaning "something given in addition to." Boot received is the money or fair market value of other (non-like-kind) property received by the taxpayer in an exchange, including cash equivalents, debts, liabilities, or mortgages assumed by the other party. Understanding what can result in boot is important if taxable income is to be avoided.
Example
An investor buys a strip mall for $200,000 and later sells it for $250,000 — a $50,000 gain that would normally trigger federal and state capital gains tax plus depreciation recapture. By reinvesting the full proceeds into another property through a Qualified Intermediary (without touching the proceeds), the investor defers paying tax on the gain at that time.