A 1031 tax deferred exchange step-by-step guide

(c) Copyright 2006 by Mark Hays

The property which you can replace the property you just sold under the 1031 tax deferred exchange must fall under the IRS guideline. So, you cannot just buy any property with the proceeds.

Once you found a property satisfying the IRS rules, you can negotiate for the purchase of that property. Make sure you indicate to the seller that you are buying the property as a replacement property under the 1031 exchange.

Finally, open an escrow account and transfer some money from the accommodator’s trust into it as earnest money. At closing, simply instruct the accommodator to transfer the balance of the exchange funds to the escrow or closing agent to close the transaction.

That’s it; these are all of the steps for a 1031 tax deferred exchange. Are all 1031 exchanges this simple? There are more complicated cases of 1031 tax deferred exchanges, especially with commercial property, but the basic process of any 1031 tax deferred exchange remains the same. So now you can take advantage of this widely used tax deferral tool and save tons of money.

Do you like finding out about different tax savings and tax deferral tools? This article shares just one of them. There are many more ways to save on taxes, reduce capital gains taxes, and help you build wealth. Don’t overlook the most important savings you can achieve with your portfolio, visit the Capital Gains information website to start learning where this article leaves off.

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Mark Hays is a financial manager with 25 years of experience in financial management and estate planning. He specializes in tax planning and has helped many benefit from many tax deferral and tax reduction strategies. Browse Mark's website starting here.