Flipping Heck! Learning To Be Productive One Day At A Time

The 1031 Exchange Process: Ten Steps To Swap

White, grey and red house with a for sale sign

The 1031 Exchange Process: Ten Steps To Swap Staff
  • Staff Twitter
  • Staff Facebook
  • Staff Pinterest

A 1031 exchange can yield many benefits for investors. If you have little to no knowledge about 1031 exchanges, much less how the process works, this guide is for you. But before we discuss the steps in a 1031 exchange, let’s define what a 1031 exchange is.

What is a 1031 exchange?

Under Section 1031 of the Internal Revenue Code of the United States, a taxpayer may have no tax or a minimal amount of taxes upon the swap of one property for another. As a result, your real estate investment can progress tax-deferred, helping you get more profit and make more investments in the long run.

The process of a 1031 exchange

In general, this is how a 1031 exchange goes. Note that one exchange may not go the same as another, so treat this guide as a typical outline.

1. Check qualifications and requirements

A real estate property that is used for business or investment, such as TIC properties for 1031 Exchange or commercial properties, qualifies for a 1031 exchange. Check if your property meets the qualifications, and then find out what the requirements are. It also helps to consult with an accountant to see if doing a 1031 exchange is worth it or if selling the property is much easier.

2. Put your property up for sale

The next step is to list your property for sale, which you can do with the help of an agent. A 1031 exchange listing is the same as a regular one, except that you have to express your goal to do a 1031 exchange.

E-Commerce, Online Shop, Web, Template, Website
Web content creators are in a rush to get their content out there. According to Statista, Google currently has 86.86% of the search engine market. It's no surprise that as a content creator, you would want the most popular search engine to pick you. However, creating content is not easy....

3. Look for another property

In general, you have 45 days to look for a replacement property after your old one is sold. Thus, it is recommended that you start looking for properties even before you get a buyer for the other one. Enlist the help of a 1031 agent to help you find the best deal.

From Passion To Profit

4. Find a qualified intermediary

A 1031 exchange can’t be done DIY–you need a qualified intermediary if you want a successful deal. Look for a reliable intermediary that will serve as your middle person throughout the exchange.

5. Strike a deal

If you have a buyer for your old property who is willing to comply with a 1031 exchange, you can start negotiating with the help of your intermediary. In any case, the paperwork must state that the sale is being done under a 1031 exchange, and the buyer needs to sign the necessary paperwork.

How To Get The Best Bang For Your Time In The Gym
Everybody's busy and we know that most people can't spend an hour in the gym every day, but there are ways you can make the most of your limited exercise time. In this article, Tyler Read gives you some advice on how to maximise your gym time.

6. Choose a replacement property

After the deal is closed, you can sign a contract for your next choice of property. The seller will also need to know you are doing a 1031 exchange, and you must have an escrow account opened.

7. Close the deal

Let your intermediary work with the title company to wrap everything up. After this, you can now close the deal on the replacement property and enjoy deferred taxes.

The 1031 exchange might sound easier than it is, but making sure you do your research will make everything run smoothly. A 1031 exchange can help you achieve more as an investor. And the best part is that you can always repeat the process.

Please Note: This post may contain affiliate links. By clicking on these links you will not be charged any extra for purchasing goods and services from our preferred partners however may receive financial compensation which contributes to the running of the site. For more information please read our Advertising & Affiliate Disclosure Policy

Leave a Reply

Your email address will not be published. Required fields are marked *