A 1031 Exchange is a powerful way to defer Capital Gains when selling a real estate investment. This process can generally be broken down into three steps:
Once you have determined you want to use a 1031 Exchange to sell your investment property, you need to ensure the proceeds from your sale are held in escrow by a Qualified Intermediary (QI). You are required select and use a QI throughout the entire exchange process so that you are never in “constructive receipt” of your transaction proceeds.
Your QI will transfer the funds from the property you sold (called “relinquished property”) when you are scheduled to close on the purchase of your new exchange property (called “replacement property”) or beneficial interest in a Delaware Statutory Trust (DST).
When the exchange is completed, you will receive title to your replacement property or your DST interest.
It’s also essential that you work with an experienced financial advisor to help navigate your 1031 Exchange because there are required timelines defined by the IRS that must be strictly adhered to, as show here:
One part of the timeline that can trip up a 1031 Exchange is identifying a suitable replacement property or properties within 45 days of closing on a relinquished property. Our team of investment professionals at Safe Harbor Asset Management, Inc. can help you avid any missteps during the period by providing a range of DST investments that we have already conducted due diligence on and thoroughly vetted.
For more information on the 1031 Exchange process and timeline, download our eBook, Tax-Deferred Strategies for Real Estate.