Island Title Exchange, Inc.

What is a 1031 Exchange?
In a typical real estate transaction, the Seller of a property is taxed on any gain realized from the sale. However, under IRC Section 1031 that taxable gain is not recognized when property, which is held for productive use in a business or trade, or held for investment, is exchanged for “like-kind” property.

The term “like kind” refers to similarity in nature or character of the properties being exchanged, rather than the grade or quality of the properties. For example;

Raw land may be exchanged for a single family rental.

Commercial property may be exchanged for a multi-family rental.

How does a 1031 Exchange work?
There are different types of 1031 exchanges; the most common type being the Delayed Exchange. In this kind of exchange, the Seller, referred to as the Exchangor, sells an investment property, referred to as the Relinquished Property.

Section 1031 guidelines require the transaction to be an exchange of properties, and not the sale and purchase of properties. The 1031 requirements also do not allow the Exchangor to have receipt or have any control over the proceeds from the sale.

In order to meet the IRS guidelines, the Exchangor needs to select an independent party, referred to as the Qualified Intermediary, to facilitate the property exchange and receive the funds.

When the Exchangor retains the services of a Qualified Intermediary, the proceeds are paid directly to the Qualified Intermediary, who holds the funds until the Exchangor selects another property to acquire, referred to as the Replacement Property.

The Qualified Intermediary assumes the position as the Buyer of the replacement property and delivers funds, when needed, to the closing agent.

Exchange Deadlines

• The Exchangor must designate the replacement property within 45 calendar days of the conveyance of the relinquished property;
  
• The Exchangor must acquire the replacement property or properties within 180 days of the conveyance of the relinquished property —OR—before the due date of the tax return filing, including extensions, for the calendar year in which the property was conveyed, whichever is earlier.
  
• There is no deadline extension for Saturdays, Sundays or holidays
  

What is a Reverse Exchange?
In a Reverse Exchange the Replacement Property is acquired prior to the transfer of the Relinquished Property.

In this type of exchange, an Exchange Accommodation Titleholder takes title to the replacement property and holds it until the Exchangor is able to sell the relinquished property.

Once the relinquished property is sold, the Exchangor exchanges the relinquished property for the replacement property with the Exchange Accommodation Titleholder, who assumes the position of the Seller and sells the property to the end Buyer.

Under the IRS guidelines a reverse exchange must be completed within 180 days.

Some Benefits of a 1031 Exchange

A Section 1031 exchange can potentially eliminate taxes due on the sale of property.

By deferring the tax, more funds are available to invest.

You can acquire and dispose of property to reallocate your portfolio without paying tax on the gain.

Fee Schedule
Our Fees are calculated based on the exchange documentation required and the number of properties involved in the exchange.

Please call for a fee quote 808.539.7539.

We require the exchange documentation for reverse exchanges and build-to-suit exchanges to be prepared by legal counsel, who will have a thorough understanding of the tax consequences on the taxpayer’s individual financial situation.

How we can help!
As a Qualified Intermediary, Island Title Exchange, Inc. controls all aspects of funding to effect the exchange of properties. We ensure asset safety by depositing all funds into federally insured financial institutions.

We are able to act as a Qualified Intermediary and facilitate a 1031 exchange with any closing agent, nationwide.

In addition to delayed exchanges, we are able to act as the Qualified Intermediary for reverse exchanges and build-to-suit exchanges.

We recommend that you always consult with an experienced real estate attorney or tax advisor to determine how the 1031 Tax Deferred Exchange should be structured to accomplish your investment objectives.

Please contact an Exchange Specialist for more information about our services or to obtain a quote of our competitive fees.