1031 Exchange Explained

The 1031 exchange is one of the most used tools for tax deferral. This 1031 Exchange Explained section of Capital Gains website discusses the 1031 exchange rules and how the 1031 exchange works today.

1031 Exchange Explained

A 1031 exchange is easy to do nowadays. Little efforts are required. Most paperwork on the 1031 exchanges are standard and all you need to do is sign a few 1031 exchange forms. Most of the 1031 exchange paperwork is handled by qualified intermediaries or accommodator of 1031 exchanges. The paperwork are then passed to the escrow and title company or closing agent.

The 1031 exchange process explained - the 5 steps process of 1031 exchange explained

The 1031 exchange process, under the 1031 exchange rules, goes like this.

1031 Step 1: First you list your property for sale with a real estate agent. Make sure that the realtor knows that you intend to do a 1031 exchange for another real estate property.

1031 Step 2: When you get an offer, your real estate agent will include a counter offer provision with the real estate contract that says that 'the buyer agrees to cooperate with the seller's 1031 exchange.'

1031 Step 3: Then, you should open an escrow account and choose your accommodator. If you don't already have an accommodator for your 1031 exchange, your real estate agent, title company or escrow company can give you the names of companies in your areas who can help you with the 1031 exchange.

1031 Step 4: You will then sign a 1031 exchange agreement with your accommodator through escrow along with other paperwork.

1031 Step 5: At closing, your proceeds will be transferred to your accommodator's trust fund on your behalf and held there until you use it for a replacement real estate property.

For more on 1031 tax deferred exchange, read Mark Hays article on A 1031 tax deferred exchange step-by-step guide.