Sunday, November 07, 2004

Down Home Talk on the 1031 Like Kind Exchange 

Real Estate Investing

Last week I must have had three or four clients ask me to give then a “simple explanation” of the steps they would need to take in doing a 1031 Exchange.

They wanted to know how this would look in plain language…so that is what you will find here. I want to say right up front that this is from my experience and it is sent to you with the caveat that you need to get the EXACT details from your Qualified Intermediary and Financial management team.

I also want to say that I have participated as the REALTOR in a good number of 1031 Exchanges with happy clients.

STEPS in the 1031 Exchange Process

___First, you need to figure out approximately how much net gain you'll have and if it's worth doing a 1031 Exchange. (Remember capital gains rates have dropped.)

___Next, when you list the property, you will want to have specific language both in the Listing Agreement and in the Sales Contract (Seller and Buyer) ...Hopefully your REALTOR will know what that language is. To be sure that s/he does, write me for a set of questions you can ask before you sign an Exclusive Right to Represent Contract. Youcan reach me at 1031@janeAnne.com

____BE SURE (double check) the 1031 language is included in the Listing and the Offer to Purchase and Contract document. The language states your intent to use the property as a 1031 Like Kind Exchange.

___Before you list your old property (seller) or think about writing an Offer to Purchase and Contract for a replacement property get out your calendar. USE IT! Missing a date by just ONE day can invalidate the entire transaction and make you liable for taxes.

___You need to use a "third party facilitator". This CANNOT be your personal CPA, your Real Estate Broker, or your personal Attorney....someone with whom you have worked closely within the last two years.. (See my notes on Qualified Intermediaries)

___MAKE SURE the Qualified Intermediary you choose has credentials through the Federation of Exchange Accomodators .Here is the member locator:

Here is the list for North Carolina:

Your QI is your bridge to the future. S/he will handle details. To learn exactly what details please go to: http://www.1031exchangeservices.net/services.html

____Remember, at the Closing, NONE OF YOUR PROCEEDS GO TO YOU! Proceeds MUST go to the facilitating Qualified Intermediary…so again, it is important that you select this person with care.

____Once funds from Closing have been transferred to your QI, you have 45 days to identify IN WRITING to the QI, up to 3 properties, or a number of properties up to 200% of the fair market value of the relinquished properties.

___You have 180 days to close on the new property. (With a couple of exceptions) if you go past 180 days, you owe the taxes. USE YOUR CALENDAR!

____And once again, when you write an offer/contract for the replacement property special LANGUAGE MUST GO IN THE CONTRACT. Make sure (double check) you and your REALTOR spell out that this is a 1031 exchange.

Let me know when you want to look at LAND BUYS in the Western North Carolina mountains.

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