The 1031 Substitute Process

By Author: Milford Cotton
Total Articles: 1
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Selling an investment property and desirous to make a return by reinvesting in a similar estate elsewhere around the nation. This wonderful model works on the principle of gain rolling through the old into the new.There is certainly widespread ignorance on the modalities concerning this exchange; in consequence, a large percentage of property owners end up forking over tax during the sale. Exchange 1031 is not just essentially a tax saving vehicle, but also makes possible the swapping of property in the fairest way. No wonder the 1031 Exchange excites the property market so much. The new income-generating substitution land provides the investor the double increase of additional income and savings from tax that will have otherwise gone to the IRS coffers. Besides saving the buyer from a huge tax burden in the guise of capital gains, the instrument offers maximum immunity and flexibility in reinvesting the cash gained from the sale in a replacement property within a given period. The exchange being time-bound isn't effortless play either. In every swap of this kind, Qualified Intermediaries plays an important role connecting ...
... the buyer and seller.

The federal nature of this 1031 Exchange regulations make the Trained Intermediary play a wizard in guiding and structuring the exchange, satisfying all parameters and suiting the plans of the clients. It is the QI who does the paperwork mandatory by the IRS to document the exchange. The QI carefully prepares all papers and serves the parties with copies of the exchange agreement, novation agreement and escrow instructions. The Exchange Agreement reads like a agreement between the Exchanger and a Authorized Intermediary.

The Property Owner explicitly agrees to transfer his old property to the Go-between, in lieu of a new estate to be supplied from the latter within one hundred eighty days. The contract outlines all terms and circumstances under which the exchange of properties should take place. For only a 1031 Exchange to take effect, both the old property as well as the new estate needs to be in the category of investment property, capable of creating revenue. The examples could be rental property, bare land, vacation homes or more. From the moment the old house is sold, within 45 days the seller needs to come out with a list containing two or three probable properties fit for replacement. And the whole process of purchasing the new property or replacement property from the list must be over in a period of 180 days. The exchange will become bona-fide only when the title stays intact and whosoever held title for the old relinquished property gets the title of the new property. In between the sale and buy of property, the seller of the old land would get no access to the cash he accrued on the sale, as the money is going to be vested with the ‘Qualified Intermediary’ till the exchange gets over. This 1031 Exchange procedure has matured to a great extent now.

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