NW Exchange

Our Affiliated 1031 Exchange Company

What is a 1031 Tax Exchange?

Section 1031 of the Internal Revenue Code rules and regulations allow the owner of an investment property to SELL the investment property and BUY another like-kind property of greater or equal value. The Capital Gains Taxes on the sale of the “relinquished” property are deferred until the “replacement” property is sold at a later date. This technique is called a Tax Deferred Exchange.

Why Do a 1031 Exchange?

The investor can use the entire amount of the equity from the sale of the relinquished property to purchase substantially more replacement property. In other words, the substantial amount in tax dollars saved by an Exchange can be used to purchase additional investment property.

What are the Steps Involved in the Exchange Process?

  • The investor or, Exchangor, enters into a contract to sell the relinquished property to a buyer.
  • The Exchangor and a Qualified Intermediary (QI) enter into an Exchange Agreement enabling the QI to work directly with the title company or attorney closing the transaction and prepare the necessary Exchange documents.
  • The QI will receive the proceeds of the sale of the relinquished property and hold the funds in a separate escrow account for the Exchangor until the closing of the replacement property(s).

  • The Exchangor must identify the replacement property(s) within 45 days of the sale of the relinquished property. The Exchangor must close on the replacement property(s) within 180 days of the sale of the relinquished property.
  • The Exchangor enters into a contract to purchase the replacement property and notifies the QI of the upcoming transaction.
  • The Exchangor assigns his rights in the purchase contract to the QI, who in turn prepares the necessary Exchange documents for the closing and wires the exchange funds to the title company or attorney closer for the purchase.
  • Finally, your QI will put together the necessary documents for the processing of your taxes and communicate them with your CPA and/or Exchangor.

The Clear and Simple Rules

√ All replacement property(s) must be identified within 45 days after the sale of the relinquished property.
√ All replacement property(s) being purchased must be closed on within 180 days from the date that the first relinquished property was sold.
√ To be fully tax-deferred, the acquired property(s) must be equal to or greater than the value of the relinquished property.

Identifying the Replacement Property(s)

  • Identify up to 3 properties such as single family rental, duplex, apartment commercial
    property, raw land, or
  • 200% Rule allows the Exchangor to identify any number of properties, as long as their
    combined value does not exceed twice that of all relinquished properties, or
  • 95% Rule allows the Exchangor to identify any number of properties, without regard to their value, provided the Exchangor acquires 95% of the fair market value of the properties identified.

What is a Qualified Intermediary (Qi)

The QI is the entity responsible for facilitating an exchange in accordance with Treasury Regulation §1031.1031 (k)-1(g)(4)(iii). Per the 1031 Treasury Regulations, the Exchange Agreement must expressly limit the Exchangor’s rights to receive, pledge, borrow, or otherwise obtain benefits of money or other property held by the QI. Typically, the use of a Qualified Intermediary (QI) is required in the completion of a 1031 Tax Deferred Exchange. Once the Exchangor enters into a written agreement (“Exchange Agreement”) the QI is responsible for:

  • Acquiring the relinquished property from the Exchangor
  • Transferring the relinquished property to the buyer
  • Acquiring the replacement property from seller
  • Transferring the replacement property to Exchangor

Our Qualified Intermediary

Brad Linville, Esq.

Attorney | 614.682.8921 | Brad.Linville@nwtitle.com

Contact Us Before You Sell!

If you are selling your property and are thinking about participating in a 1031 exchange, call NW Exchange at 614.682.8921.