1031 LIKE-KIND EXCHANGES
SOUTHERN MINNESOTA’S 1031 EXPERTS
St Andrews Title & Exchange Inc is a full-service exchange company providing documentation of real estate exchanges, including forward, reverse and improvement exchanges. Randy Zellmer is a Certified Real Estate Specialist and Minnesota real estate attorney with more than four decades of real estate and 1031 experience, overseeing thousands of exchanges. He serves as a resource to attorneys, tax advisors, real estate professionals, investors and those with 1031 questions.
1031 FAQs
WHAT IS A 1031-EXCHANGE?
A 1031-Exchange is an IRS-authorized process to exchange like-kind business or investment properties while deferring the tax liability (Capital Gain) on the sale.
To satisfy the IRS requirements, the Taxpayer must use a neutral third party to facilitate the exchange – to hold the proceeds of your sale then use it to buy your replacement property (or to hold title to the property you buy until you sell your relinquished property in the case of a Reverse Exchange). St Andrews Title & Exchange Inc (SATE) is here to assist you as your Qualified Intermediary in your exchange process!
WHY EXECUTE A 1031-EXCHANGE?
It defers capital gains tax, and defers payment of depreciation recapture. If the current taxpayer dies owning the property, that taxpayer’s heirs get a step up in basis, allowing the asset to continue appreciation.
WHAT QUALIFIES FOR A 1031-EXCHANGE?
You must exchange “like-kind” property – getting rid of property you now own and replacing it with new property to you of a “like-kind”. Properties that are like-kind with each other include Investment, Rental and Trade or Business. This exchange does not have to be simultaneous – the IRS generally gives you 180 days to complete the process.
The property you receive in the exchange must be at equal or more value than what you gave up. If not, you would owe taxes on the difference.
There must be continuity of ownership throughout the exchange process – the same person or entity who gives up the relinquished property must receive the replacement property.
WHAT DO ALL THESE TERMS MEAN?
Taxpayer (same as Exchangor) – the person or entity benefitting from the Exchange
Relinquished Property– The property to be sold or disposed of by the Taxpayer in the tax-deferred, like-kind exchange transaction.
Replacement Property– The like-kind property to be acquired or received by the Taxpayer in the tax-deferred, like-kind exchange transaction.
Boot- Cash or other property given by one party to another in a tax-deferred, like-kind exchange that is taxable.
Qualified Intermediary (or “QI” or Accommodator)– the unrelated party who facilitates the sale of the Taxpayer’s relinquished property and the purchase of the Taxpayer’s replacement property. The QI has no economic interest in the exchange except for its fees to perform these functions.
WHAT IS A “REVERSE EXCHANGE?”
The Replacement Property is purchased first, before the Taxpayer sells the Relinquished Property. It has the same deadlines as a traditional (“Forward”) exchange.
The property must be parked with a Qualified Intermediary during the process. St Andrews Title & Exchange has you covered there also! St Andrews Holding Company LLC is able to take title to the Replacement Property during the interim until the Reverse Exchange can be completed.
Give us a call and ask for Randy Zellmer to discuss details.
HOW MUCH TIME DO I HAVE TO COMPLETE THE EXCHANGE OF PROPERTIES?
The Exchange Period begins to run on the date the Taxpayer either transfers (or receives, in the case of a Reverse Exchange) – namely the date the deed is recorded. This is “Day 0”
180-Day Deadline – The Taxpayer has 180 days or the date their tax return is due, whichever comes first, to close on the second leg of the transaction. There are some options, like filing for an extension to your tax return, but best to discuss that with your accountant or tax advisor.
HOW LONG DO I HAVE TO IDENTIFY REPLACEMENT PROPERTIES?
45-Day Deadline – The first 45 days of the 180 is the Identification Period. During this time, the Taxpayer must submit a list of target properties. The Taxpayer may identify up to three (3) properties of any value. There are also some options if you have more than three properties, depending upon the total fair market value. Talk to your accountant or tax advisor if you have questions.
This requirement is strictly enforced, and the identification must be in writing, dated, signed and adequately identify the property – usually by an address or legal description.
You do not have to purchase all of the properties you identify – it simply gives you more options
You can do a “multi-property” exchange – relinquishing multiple properties to replace with one, or relinquishing one property to replace with multiple properties.
1031-EXCHANGE: A TIMELINE
SELLING YOUR RELIQUISHED PROPERTY
Include notice in your contract to let the Buyer know of the 1031 Exchange
Provide your settlement agent and SATE with each other’s contact information
When your sale closes, proceeds are delivered to SATE
Your 45-day notice period and the 180-day exchange window begins
IDENTIFICATION OF REPLACEMENT PROPERTY
You have 45 days from the date of your sale to identify replacement property
The exchange is open until all properties are closed or the exchange window closes at day 181
CLOSING ON REPLACEMENT PROPERTY
You can close any time within the 180-day exchange window
Include notice in your contract to let the Seller know of the 1031 Exchange
Provide your settlement agent and SATE with each other’s contact information
Your settlement agent and SATE will prepare and collect all necessary documents
Once the closing is complete and/or the expiration of the 180-day exchange period, your exchange will close and any remaining funds (less any fees due to SATE) will be refunded to you
REVERSE 1031-EXCHANGE: A TIMELINE
BUYING YOUR REPLACEMENT PROPERTY
Include notice in your contract to let the Seller know of the 1031 exchange
Provide your settlement agent, your lender (if applicable) and SATE with everyone’s contact information
When your purchase closes, TITLE to the real estate you are buying will be “parked” in St Andrews Holding Company, LLC, a Qualified Exchange Accommodation Titleholder.
Your 45-day notice period and the 180-day exchange window begins
IDENTIFICATION OF RELINQUISHED PROPERTY
You have 45 days from the date of your purchase to identify relinquished property
The exchange is open until all properties are closed or the exchange window closes at day 181
CLOSING ON RELINQUISHED PROPERTY
You can close any time within the 180-day exchange window
Include notice in your contract to let the Buyer know of the 1031 Exchange
Provide your settlement agent and SATE with each other’s contact information
Your settlement agent and SATE will prepare and collect all necessary documents
Once the closing is complete and/or the expiration of the 180-day exchange period, your exchange will close and any remaining funds (less any fees due to SATE) will be refunded to you; The title to your Replacement Property will be transferred from St Andrews Holding Company to you.