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      • 1031 Exchange: Exchange Documentation and Procedures

      1031 Exchange: Exchange Documentation and Procedures

      • Posted by Janna Perret
      • Categories News
      • Date December 3, 2019

      To meet the requirements of the Qualified Intermediary (QI) safe harbor, there must be a written exchange agreement between the Taxpayer and the QI. The agreement must be executed at or before the closing of the relinquished property.

      Both the relinquished property and replacement property contracts must be assigned to the QI. The relinquished property purchaser and the replacement property seller must have notice that the Taxpayer’­s contract rights have been assigned. It is a good idea to attach a rider to the contract with language to require the parties to participate in the exchange. There is no additional risk to the non-exchanging purchaser/seller under a § 1031 exchange.

      The QI does not take title to the real estate. The regulations allow the property to be deeded directly between the respective parties.

      The net proceeds of the sale of the relinquished property go directly to the QI, to prevent actual or constructive receipt of the proceeds by the Taxpayer.

      The earnest money deposit for the replacement property may come from the proceeds held by the QI. The Taxpayer should issue a letter of direction to the QI, including the reason for the disbursement of funds and the method of delivery. The replacement property contract must be assigned to the QI before any earnest money may be withdrawn from the escrow. The QI cannot directly reimburse the Taxpayer for any earnest money deposit made by the Taxpayer.

      When it is time for the closing on the replacement property, the Taxpayer must make a written request for the transfer of exchange proceeds to the closing agent. The proceeds are never made payable to the Taxpayer.

       


      This article was originally published by Janna Perret of First American Exchange Company at https://www.firstexchange.com/exchange-documentation-and-procedures. To learn more about 1031 Exchanges you may contact Janna Perret, the Central Region Manager at First American Exchange Company, by phone at 504-539-5933 or view her PROFILE.

      Information provided with permission from First American Exchange Company. All rights reserved. First American Exchange Company makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions.

      • Share:
      Janna Perret

      Vice President/Regional Manager

      Janna Shearman-Perret is vice president and Regional Manager of First American Exchange Company, a division of First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance and settlement services for residential and commercial real estate transactions. Janna has worked in the exchange industry since 2004 and has attained the designation of Certified Exchange Specialist®. Experienced in facilitating all types of 1031 tax-deferred exchanges, including real, personal, and multi-asset properties, she also specializes in and enjoys handling the more complex reverse and build-to-suit exchanges. She is a frequent speaker on the topic of 1031 exchanges and has had articles published in several trade journals. Janna has extensive experience in real estate transactional work, having worked for 20 years as a commercial real estate paralegal and licensed title insurance agent. Janna prides herself on providing great customer service, backed by the financial strength and stability of an industry leader. She works closely with all parties involved to make the exchange a simple and seamless component of the transaction.

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