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1031 Exchanges - Part 2 1031 Exchanges - Part 2 The accommodator guides the process and handles all the
documents to enable the qualification, but they must be totally independent:
They can not provide tax, legal, or financial advice to you. You will recall
that I stated in my prior article that you should consult with your tax
accountant and attorney throughout this process. There are timing rules that must also be met or the exchange
could be disqualified, and you will owe the appropriate tax on the gain. Here is an example of how the transaction would work: Prior to closing on the sale of the relinquished property, an
exchange agreement needs to be signed with the Accommodator. For my
example Benchmark Title will be designated as the Accomodator. At the closing of the sale, the net proceeds are immediately
handed over to Benchmark Title as the accommodator and are held for the
seller. Those funds can be invested in a separate account to earn interest
for the benefit of the seller. From the closing date the seller has 45 days to
identify the replacement property and notify Benchmark, in writing, of the
property identified (up to three properties may be
identified). The seller must close on the purchase of the
replacement property within 180 days. Holidays and weekends count as days and
there is no variation from those timing issues. You can use fewer days
than stated, but if you go over, the exchange will be disqualified and you
will owe the appropriate tax. In summary, you have sold one property, purchased another of
equal or greater value and never touched the proceeds and any capital gain on
the sale is tax deferred to a later date. Remember, it is a Tax Deferred
exchange transaction approved by the IRS, not a TAX FREE exchange. More to follow with a Q&A section on this very interesting
topic.
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