Types
of Exchanges
Exchanging can range anywhere from a simple swap of two properties to a complex, multi-leg, multi-party transaction involving construction and/or reverse exchanges.
SIMULTANEOUS EXCHANGES
Prior to the 1979 Starker decision1, most exchanges were limited to the simultaneous form. In a simultaneous exchange, both properties close the same day. Since 1991, the only "safe-harbor"2 for a simultaneous exchange is the use of a qualified intermediary.
DELAYED EXCHANGES
The Starker decision marked the advent of delayed exchanging. In the delayed exchange, "like-kind" property must be designated within 45 days of the sale closing. The replacement property must be closed by the 180th day. Once the replacement property has been located, the intermediary purchases it and immediately trades the property to the exchangor.
In a delayed exchange, the replacement property must be designated within 45 days of closing of the relinquished property and the replacement property must close within a total of 180 days.
PHASE I:
Begins when the Exchange Agreement is signed and the relinquished property is transferred to a qualified intermediary (1031 Exchange Services, LLC) through an Assignment Agreement. The property is then sold to the buyer and the cash proceeds are deposited into an exchange account.
PHASE II:
Begins once a purchase contract is signed with the seller. The qualified intermediary (1031 Exchange Services, LLC) is assigned the sale of the relinquished property. The exchange is completed when the replacement property is transferred to the taxpayer pursuant to the Exchange Agreement.
CONSTRUCTION (IMPROVEMENT) EXCHANGES
The construction exchange (sometimes termed improvement exchange) is an exchange where the intermediary retains ownership of the replacement property and improves it. Once construction is complete, the intermediary trades the property to the exchangor.
REVERSE EXCHANGES
Circumstances sometimes make it necessary to acquire the replacement property before closing on the relinquished property. This can be accomplished through a reverse exchange which is now officially sanctioned by the IRS, when structured properly.
MULTI-PROPERTY AND MULTI-PARTY EXCHANGES
An investor can trade out of one property into several or consolidate from smaller properties into one larger property. Two or more investors owning property together can trade into separate properties.
1Starker v. U.S., 602 F.2d 1341 (9th Cir. 1979)
2 Safe-harbor: A device approved by the IRS, which shields the exchangor from receiving sale proceeds; a qualified intermediary is by far the most commonly used safe-harbor.
<< back
Our
Services | Our Commitment | Basic Exchange Rules
| Exchange Benefits | Contact Us |
