Get free access to our world class MLS search tools, save your favorite listings, create saved searches & much more!

The 10-Step Process to Perform a 1031 Exchange

Posted by Ben Jones on Wednesday, June 5th, 2019 at 8:44am.

Let’s walk through the step by step process for carrying out a 1031 exchange. Be aware that the following is just a general outline, so specific deals will likely vary slightly from this process.

 

The 10-Step Process to Perform a 1031 Exchange

1. Decide to sell and do a 1031 exchange.
Not every purchase is worth doing a 1031 exchange. After all, with all the requirements, costs, and countdown timers, simply paying the tax and moving on may be advantageous. That is definitely a discussion for you to have with your accountant.

2. List your property for sale.
You then list your property for sale, as you ordinarily would. Your agent will likely include language in the listing paperwork regarding your desire to do a 1031 exchange and the buyer’s needed willingness to play along.

3. Begin looking for replacement properties.
Remember, the moment the relinquished property is sold, the 45-day countdown begins. Therefore, you should begin looking for deals immediately.

4. Find a qualified intermediary.
Look for someone professional with a good reputation.

5. Negotiate and accept an offer.
When someone agrees to buy your property, you will need to make sure the paperwork clearly states that a 1031 exchange is taking place on your end, and the buyer will need to comply. Although the buyer does not need to do a lot of work, they may need to sign off on certain paperwork, such as assignments or disclosures.

6. Close on the sale of your relinquished property.
The title company or attorney will handle the closing, as with any other real estate transaction, except that your qualified intermediary will be actively involved in the process, and the funds will transfer to their bank account, not yours.

7. Identify up to three properties within 45 days.
Now is the time to officially designate the properties you might pursue. Keep in mind, you can identify up to three properties, or more if you close on 95% of them or the total combined value of the identified properties is less than 200% of the sales price of your relinquished property.

8. Sign a contract on the first-choice property.

Most likely, of the three properties you identify, one will stand out as your first choice. You will need to get that property under contract and open escrow, making sure the seller knows you are purchasing through a 1031 exchange. You could also go under contract on all three of your identified properties, using contingency clauses to back out on the ones you later decide not to pursue.

9. Let your qualified intermediary work with the title company.
You, your agent, and your qualified intermediary will work with the title company or closing attorney to make sure to dot all the Is and cross all the Ts. This is actually a fairly simple process, one that your qualified intermediary should be familiar.

10. Close on the replacement property.
Finally, the qualified intermediary will wire your money over to the title company or attorney, and the property will close as in a normal transaction, deferring your need to pay the taxes until some point in the future, if ever. (I’ll talk about the “end game” in a moment.) The beauty of the 1031 exchange is that you can repeat this process over and over again on properties and continue deferring taxes indefinitely. This can help you build some serious wealth over time, greater than if you simply paid the taxes each time.



Related Blog Posts

Henderson Home for Sale: 344 Bekasina Drive

If you are looking for a beautiful Henderson, Nevada home that is for sale, this new listing at 344 Bekasina Drive may be the ideal home for you. Henderson, Nevada is just a short drive from the Las Vegas Strip but is light years from that lifestyle. Henderson is considered one of the safest cities in the Unite...

Las Vegas Home for Sale - 170 East Eldorado Lane

  This fabulous single story Las Vegas home in the Southern part of Las Vegas Nevada has an open floor plan, Santa Fe style, on nearly ½ acre of land. It is centrally located in Las Vegas and provides easy access to many amenities. This pool and spa home for sale in Las Vegas&...

Nevada Infrastructure: Keeping Up with a Growing State

According to the U.S. Census Bureau, Nevada’s 1.95 percent population growth rate from July 2015 to July 2016 made it the second fastest-growing state in the country. With the state’s official population nearing the three million mark, how is infrastructure keeping up with growth? Major Road P...

HSA Home Warranty Helps Las Vegas Homeowner

We wanted to extend public kudos to HSA Home Warranty Company for going way beyond the expected for a Las Vegas home owner! This week one of our agents, Maxine, who had purchased a warranty for her home, opened her front door to discover that, after a day of 110 degree temperatures, her air conditioning system was comp...

Just Sold: 9528 Spanish Steps Lane

Just Sold Las Vegas! Listed for 449,900 SOLD for $440,000 -- 9528 Spanish Steps Lane -- Home in Las Vegas Nevada Sparkling pool & spa with a covered patio and lush landscape making the weather in Las Vegas easy to live in luxury with this backyard oasis. This beautiful Las Vegas home in Peccole Ranch h...

Leave a Comment

Have a Question?

Contact Us

Follow Us