The 1031 Exchange Process
Internal Revenue Code Section 1031 Basics
A real-estate exchange is a complex process that requires a basic understanding of the exchange process. Please review the step-by-step graphic below.
The 1031 Exchange Process
1
Preparation
- Consult with a tax or legal advisor to see if a 1031 exchange is necessary for your transaction.
- Connect with Excel 1031 to to guide you through the steps and discuss your 1031 exchange options.
- When your property is under contract, inform your real estate agent, closing agent, and Excel 1031.
- Provide us with your closing agent’s contact information (this is usually a person working at either an escrow/title company or an attorney).
2
Exchange Process
- We will request a copy of the contract and title report from your closing agent to prepare the exchange documents and create your exchange account.
- Once available, we will send you and your closing agent a copy of the exchange documents electronically. Sign the exchange documents prior to your property closing.
- The sales proceeds from your relinquished property will be deposited in your exchange account and a balance statement will be sent to you. You can use your balance statement as your proof of funds for the purchase of replacement property (new purchase).
3
Replacement Property
- Your exchange period starts from the day your relinquished property closes. You must identify your replacement property by midnight on the 45th day.
- Once your offer for a new property is accepted, please inform us and provide us with the contact information of the closing agent handling your replacement property.
- We will set up wires for the earnest money deposit for your replacement property per the terms of your purchase agreement
4
Completion
- We will wire the remaining proceeds from your exchange account to your closing agent when you're ready to close in order to finalize the purchase of your replacement property.
- Once your purchase and exchange is complete, we will provide you the information and forms needed to report the exchange on your tax return.
