The delayed exchange is common and straightforward: the Exchangor relinquishes property before he acquires property. In other words, the property the Exchangor owns (called the “relinquished” property) is transferred first. The property the Exchangor wishes to own (called the “replacement” property) is acquired second.
Before the delayed exchange is initiated, the Exchangor is responsible for marketing his property, securing a buyer, and executing a sale and purchase agreement. The Exchangor’s obligation to sell the relinquished property is then assigned to Equity Advantage. By the assignment, Equity Advantage transfers the relinquished property to the buyer. Equity Advantage then receives money (exchange proceeds) from the buyer for the relinquished property.
Within 45 days of the relinquished property transfer, the Exchangor must identify replacement property to acquire. The Exchangor negotiates the purchase terms for the replacement property with the seller and executes a purchase and sale agreement. The Exchangor’s obligation to buy the Replacement property is then assigned to Equity Advantage. The assignment allows Equity Advantage to use the exchange proceeds (in addition to other funds provided by the Exchangor) to purchase the replacement property.
Equity Advantage is mandated by IRC 1031 to transfer the replacement property to the Exchangor within 180 days of the relinquished property transfer.
EXCHANGOR’S GUIDELINES TO ACCOMPLISHING THE DELAYED EXCHANGE
Phase I: The Relinquishment
- Contact Equity Advantage
- Equity Advantage provides information to make sure an exchange is beneficial to you.
- Establish an account with Equity Advantage: provide contact information and any additional property information you know at this time.
- Locate a buyer for your property or properties
- Negotiate the terms for the sale.
- Sign the sales agreement.
- The agreement must have a paragraph stating that the sale is subject to a 1031 Exchange and the buyer agrees to cooperate with the exchange (1031 Exchange Cooperation Clause).
- Contact your Closing Agent
- Provide sale information.
- Inform the closer that the sale involves a 1031 Exchange and that Equity Advantage will be facilitating the exchange and will contact them shortly.
- Contact Equity Advantage
- Equity Advantage gathers the additional information needed to structure an exchange: property information, closing date, sales price, Buyer’s information, Closing Agent information, etc.).
- Equity Advantage generates exchange documents and sends them to all appropriate parties.
- Closing occurs
- Both parties (Exchangor and Buyer) sign exchange documents drafted by Equity Advantage.
- Relinquished property title is direct deeded from Exchangor to the Buyer.
- Closing Agent forwards the sale proceeds to a federally insured bank designated by Equity Advantage.
This completes Phase I of the exchange. At this point, you have transferred a property to Equity Advantage, and Equity Advantage has sold the property.
Phase II: The Acquisition
- Review the Identification Packet sent to you by Equity Advantage
- Equity Advantage creates and forwards an Identification Packet for your review after receiving the Final Settlement Statement from the Closing Agent.
- The packet contains the following: the relinquished property’s transfer date, the amount of exchange proceeds received, the 45-day identification deadline, and the 180-day deadline to complete the exchange.
- The identification form provided must be filled out and signed by you, the Exchangor.
- Locate property or properties you wish to buy
- Negotiate the terms for the purchase.
- Sign a sales agreement (may be done before or after identifying the property).
- The agreement must have a paragraph stating the sale is subject to a 1031 Exchange and the buyer agrees to cooperate with the exchange (1031 Exchange Cooperation Clause).
- Identify the property or properties you wish to buy
- This must be done by midnight of the 45th day of your exchange period.
- Send the filled out and signed copy to Equity Advantage via fax, mail or email.
- THE IRS DOES NOT ISSUE EXTENSIONS unless you and/or the property is impacted by a Presidentially Declared Disaster.
- Contact Closing Agent
- Provide sale information.
- Inform agent that the sale involves a 1031 Exchange and that Equity Advantage will contact them shortly.
- Contact Equity Advantage
- Equity Advantage gathers the additional information needed to structure an exchange: property information, closing date, sales price, Seller’s information, Closing Agent information, etc.)
- Equity Advantage generates exchange documents and sends them to all appropriate parties.
- Closing occurs
- Both parties (Exchangor and Seller) sign exchange documents drafted by Equity Advantage.
- Equity Advantage wires exchange proceeds to the closing agent for the purchase of the replacement property.
This completes Phase II of the exchange transaction. At this point, Equity Advantage has acquired the replacement property and transferred it to the Exchangor. This completes the 1031 Exchange.
