Procedural Analysis of 1031 Exchange

Highly experienced and savvy real estate investors know that a 1031 exchange is a common tax strategy that assists them to increase their net worth faster and grow their portfolios more efficiently than would otherwise be possible. Thus, a 1031 exchange can save significant amounts of money for a real estate investor. So, even if you’re sitting on hundreds of thousands of dollars in profit from an investment, a 1031 Exchange Salt Lake City can let you use all of your proceeds to reinvest in another property.

 

The Big Picture:

The last statement in the above para clarifies that the basic idea of a 1031 exchange is that you’re selling an investment property and reinvesting the proceeds in a “like-kind” property. In practice, it just means that you’re selling one business property and buying another. As long as both the properties are in the United States, there aren’t many restrictions on the type of investment properties you can sell and buy. 

 

In facilitating the exchange, a third party is needed. Third-party can be either an individual or an entity in the business of facilitating 1031 exchange. What this does is it increases the entire process from two steps to four steps.

 

* The investor first transfers their property to the facilitator.

* The facilitator then completes the deal.

* The facilitator now receives this new property.

* Lastly, the facilitator transfers the property to the seller.

 

The Implemented Roadmap:

The steps mentioned above will not apply to every type of situation. Let’s understand this by an example - If you buy a new property within 45 days of selling your original property, the critical requirements to identify potential replacement properties will not apply to you/in your case. 

 

- First step is to identify the property you want to sell.

- Second step is selecting a QI (Qualified Intermediary).

- Third is getting a copy of the sales contract to the QI.

- Then comes the step of identifying replacement properties.

- Sign as assignment contract for the new property

- Closing on the replacement property.

 

The final step of the procedure involves filing IRS form 8824. This last step reports the exchange to the IRS.

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