Category: 1031 Exchange General

Facilitating a 1031 like-kind exchange not only takes time, but also requires significant knowledge to help the real estate investor understand the complexities of a safe-harbor 1031 deferral.  Qualified Intermediaries (QIs) are facing unforeseen pressures driven by all-time high transactional volumes.  Coupled with employment retention concerns, tax uncertainties still looming in Washington, D.C. and limited real estate replacement property options, the 1031 industry is working overtime to meet demands to satisfy clients in the 180-day period necessary to complete 1031 exchange transactions.  
QIs that are focused on daily administrative duties like 45-day identification reminders, collecting faxed signatures, customizing document preparation, collecting assignments, tracking files between their home and office, managing electronic calendars and re-entering data find it increasingly challenging to create a great client experience.  All of these mundane tasks compete with time your clients demand to interact with you, the 1031 exchange expert.  It is time to automate your redundant 1031 processes in return for rebuilding your relationship with your clients. 
Top 10 Reasons Qualified Intermediaries Should be Using 1031 Exchange Software

Document preparation and delivery.  1031 documents should not require significant rewrites and customization to accomplish your clients’ transactions.  Automating the drafting, delivery, and signing of all exchange agreements provides a consistent delivery to both your staff and your clients.
45-day and 180-day reminders.  Calendar reminders and sticky notes cannot keep up with demand.  Well drafted and TIMELY notices should always be expected by your clients – so leverage technology to handle this banal task and automate the workflow. 
Exchange Calendar overview. A quick glance at upcoming deadlines at a company, client, exchange specialist, day, week, or monthly level supports prioritizing the most important task across all exchanges.
E-signature.  Not only more secure, e-signatures provide audit-trails, efficiencies, and flexibilities necessary to participate in today’s real estate industry workflow.
End-of-Exchange Report. A terrific value-add to the exchanger – A click of a button provides all the necessary information for your client’s 8824 report at any time.
Auto populate repeat clients, referral partners and wiring instructions.   Immediate access to repetitive data stored in highly secured, dedicated, and redundant databases for easy population in the 1031 workflow.
Segregation of duties. Provide certainty to who has access to your clients’ data and exchange funds while ensuring your company’s security protocols are met.
Single data entry.  The top causes of failures are miscommunications or inaccurate data.  Remove the need to input the same information multiple times to complete a 1031 exchange transaction.
Automated reporting.  Detailed downloadable pending, open, and closed exchange reports.  Produce critical deadline alerts.  Analyze business trends by types of properties, locations, sales leads.  
Access to all exchange data anytime, anywhere.  In today’s virtual world, carrying around hard copy agreements and reports containing your client’s personal data or even residing on a company laptop is putting both you and your client at risk.     

The Qualified Intermediary cannot be the reason deals slow down in today’s high-paced real estate environment.  The services of a QI must integrate seamlessly to the long-term objectives of your clients.  Asking clients to step back in time to provide a wet signature, reproduce data that was previously given, act on the one email or voicemail left by your team, impede a closing because documents are still in transit, or simply miss a critical deadline due to someone on your staff being sick or on vacation is not a way to grow or sustain business going forward.  Those QIs who have thrived over the last two years recognize the importance of embracing change and quickly adapting newer technology to stay relevant. 
Benefits of Dedicated 1031 Exchange Software
Whether your 1031 exchange operations are a secondary service for your parent company, or you are an independent QI managing every aspect of your exchange, don’t rely on poorly recalibrated title, loan, or legal software masquerading as a 1031 process to make your team more efficient and profitable.  Do your homework before you engage a team of developers who promise to quickly create an excel spreadsheet, automate a mail merge, or design, develop and launch a customized software that is scalable for your future.  New technology projects tend to lead to cost overruns, unnecessary distractions, and ultimately frustrations due to failure of meeting expectations. 
Seeking out a proven 1031 Software as a Service (SaaS) offering will allow you to put your focus back to where it belongs – ON THE CUSTOMER.  Exchange Manager Pro is the industry’s only SaaS solution built 100% for the 1031 like-kind exchange process.  Through open APIs, this secured, cloud-based 1031 exchange solution integrates with current workflow.  Exchange Manager Pro was designed, developed, and patented by one of the country’s largest and oldest qualified intermediaries.  Now, more than ever, qualified intermediaries must maintain an efficient, consistent and automated client experience to parallel the industry being served.  Exchange Manager Pro provides the software delivery to enhance the 1031 experience and put qualified intermediaries focus back on the client.  

While many of our clients’ 1031 exchanges are complex, every 1031 exchange requires adherence to basic rules and guidelines. Some of our clients are visual learners, and appreciate our 1031 Exchange infographic. For those who prefer to read the information, we offer the following outline of the basic steps of a Section 1031 Exchange.
Prior to Closing of the Relinquished Property
IRS Regulations require that the exchange documentation be in place prior to the closing on the property being relinquished or disposed of. Once you determine that you should structure your transaction as a Section 1031 Exchange, the next step is to add an Addendum to the contract for the sale of the property. This Addendum, while technically not required, is suggested in order to show the intent to do an exchange, permit assignment of the contract to the Qualified Intermediary (QI), and to reassure the buyer that there is no additional expense or liability for the buyer.
Relinquished Property Addendum
Once the contract on the property being relinquished has been ratified, a copy of the contract should be provided to the Qualified Intermediary (or “QI”), along with the contact information of the attorney, and the title company, settlement agent, or escrow agent who will be conducting the closing.
The QI then prepares the required Exchange Agreement, the Assignment, and the Notice of Assignment, and provides this document package to the taxpayer and counsel, and provides instructions to the settlement agent. These documents must be signed and delivered prior to the closing (or the very latest, at the closing).
After Closing   
The settlement agent should wire the funds directly to the QI, and forward copies of the settlement statement and other closing documents to the QI, either electronically or by overnight delivery.
45-Day Identification   
Within 45 days of the transfer of the first relinquished property, the taxpayer must provide an identification of the potential replacement property/properties to the QI. The Regulations provide different identification options: (i) if the replacement property is received before the end of the 45-day identification period, it is considered identified; (ii) identify no more than three alternative properties, regardless of fair market value; (iii) if the taxpayer identifies more than three properties, the total fair market value should not exceed 200% of the value of the property relinquished; (iv) if identifying more than three properties, with total fair market value exceeding 200%, then the taxpayer must actually acquire a minimum of 95% of the identified fair market value. A more detailed discussion of the identification requirements is contained in this post.
IRS Regulations require the identification of replacement properties be in writing, be signed by the taxpayer, and delivered to the QI. Properties should be identified by street address and/or legal description, or other readily identifiable means, such as “the Mayfair Apartment Building, Collingswood, NJ.”
After the 45-day period has expired, only those properties that were properly identified may be acquired as replacement properties and be part of the exchange. No new properties may be identified after the 45-day identification period.
The identification may be revoked or amended at any time during the 45-day identification period and new replacement property may be identified. However, this also must be done in writing, be signed by the taxpayer, and be delivered to the QI before the end of the identification period.
Identification of Property to Be Built   
The regulations provide special rules for the identification and receipt of replacement property to be built. The identification requirement for the property to be built will be met if the identification provides “a legal description for the underlying land and as much detail is provided regarding construction of the improvements as is practicable at the time the identification is made.”  Note: Improvements to be made to property already owned by the taxpayer are not considered like-kind and cannot be used as a replacement property in a 1031 exchange.
180-Day Exchange Period   
The taxpayer must complete the acquisition of the identified property/properties within 180 days from the transfer of the first relinquished property – or the due date of their tax return, whichever date is earlier. Taxpayers who start their 1031 exchanges after October 15 may want to consider filing for an extension on their income taxes in order to obtain the benefit of the full 180-day exchange period. Obtaining an extension requires filing IRS Form 4868, and provides an extension on the due date of the tax return only, not on the 180-day exchange period.
Prior to Transfer of the Replacement Property   
When an offer is made on a desired replacement property, an Addendum may be added, stating that the transaction is part of a like-kind exchange, that the contract may be assigned to the QI, and that there is no additional liability or expense to the sellers. As with the addendum for the relinquished property, this is technically not required to comply with Section 1031.
Replacement Property Addendum
Once the QI receives a copy of the contract to purchase the replacement property, the QI will prepare the appropriate Assignment of Contract, Notice of Assignment, and instructions to the settlement agent. The QI will coordinate with the taxpayer, taxpayer’s counsel, and the settlement agent, and wire the exchange funds to the settlement agent.
Reporting the Exchange – IRS Form 8824
As part of the tax return for the year that the relinquished property was transferred, the taxpayer will report the exchange on IRS Form 8824, Like-Kind Exchange.    
 

While many of our clients’ 1031 exchanges are complex, every 1031 exchange requires adherence to basic rules and guidelines. Some of our clients are visual learners, and appreciate our 1031 Exchange infographic. For those who prefer to read the information, we offer the following outline of the basic steps of a Section 1031 Exchange.
Prior to Closing of the Relinquished Property
IRS Regulations require that the exchange documentation be in place prior to the closing on the property being relinquished or disposed of. Once you determine that you should structure your transaction as a Section 1031 Exchange, the next step is to add an Addendum to the contract for the sale of the property. This Addendum, while technically not required, is suggested in order to show the intent to do an exchange, permit assignment of the contract to the Qualified Intermediary (QI), and to reassure the buyer that there is no additional expense or liability for the buyer.
Relinquished Property Addendum
Once the contract on the property being relinquished has been ratified, a copy of the contract should be provided to the Qualified Intermediary (or “QI”), along with the contact information of the attorney, and the title company, settlement agent, or escrow agent who will be conducting the closing.
The QI then prepares the required Exchange Agreement, the Assignment, and the Notice of Assignment, and provides this document package to the taxpayer and counsel, and provides instructions to the settlement agent. These documents must be signed and delivered prior to the closing (or the very latest, at the closing).
After Closing   
The settlement agent should wire the funds directly to the QI, and forward copies of the settlement statement and other closing documents to the QI, either electronically or by overnight delivery.
45-Day Identification   
Within 45 days of the transfer of the first relinquished property, the taxpayer must provide an identification of the potential replacement property/properties to the QI. The Regulations provide different identification options: (i) if the replacement property is received before the end of the 45-day identification period, it is considered identified; (ii) identify no more than three alternative properties, regardless of fair market value; (iii) if the taxpayer identifies more than three properties, the total fair market value should not exceed 200% of the value of the property relinquished; (iv) if identifying more than three properties, with total fair market value exceeding 200%, then the taxpayer must actually acquire a minimum of 95% of the identified fair market value. A more detailed discussion of the identification requirements is contained in this post.
IRS Regulations require the identification of replacement properties be in writing, be signed by the taxpayer, and delivered to the QI. Properties should be identified by street address and/or legal description, or other readily identifiable means, such as “the Mayfair Apartment Building, Collingswood, NJ.”
After the 45-day period has expired, only those properties that were properly identified may be acquired as replacement properties and be part of the exchange. No new properties may be identified after the 45-day identification period.
The identification may be revoked or amended at any time during the 45-day identification period and new replacement property may be identified. However, this also must be done in writing, be signed by the taxpayer, and be delivered to the QI before the end of the identification period.
Identification of Property to Be Built   
The regulations provide special rules for the identification and receipt of replacement property to be built. The identification requirement for the property to be built will be met if the identification provides “a legal description for the underlying land and as much detail is provided regarding construction of the improvements as is practicable at the time the identification is made.”  Note: Improvements to be made to property already owned by the taxpayer are not considered like-kind and cannot be used as a replacement property in a 1031 exchange.
180-Day Exchange Period   
The taxpayer must complete the acquisition of the identified property/properties within 180 days from the transfer of the first relinquished property – or the due date of their tax return, whichever date is earlier. Taxpayers who start their 1031 exchanges after October 15 may want to consider filing for an extension on their income taxes in order to obtain the benefit of the full 180-day exchange period. Obtaining an extension requires filing IRS Form 4868, and provides an extension on the due date of the tax return only, not on the 180-day exchange period.
Prior to Transfer of the Replacement Property   
When an offer is made on a desired replacement property, an Addendum may be added, stating that the transaction is part of a like-kind exchange, that the contract may be assigned to the QI, and that there is no additional liability or expense to the sellers. As with the addendum for the relinquished property, this is technically not required to comply with Section 1031.
Replacement Property Addendum
Once the QI receives a copy of the contract to purchase the replacement property, the QI will prepare the appropriate Assignment of Contract, Notice of Assignment, and instructions to the settlement agent. The QI will coordinate with the taxpayer, taxpayer’s counsel, and the settlement agent, and wire the exchange funds to the settlement agent.
Reporting the Exchange – IRS Form 8824
As part of the tax return for the year that the relinquished property was transferred, the taxpayer will report the exchange on IRS Form 8824, Like-Kind Exchange.    
 

While many of our clients’ 1031 exchanges are complex, every 1031 exchange requires adherence to basic rules and guidelines. Some of our clients are visual learners, and appreciate our 1031 Exchange infographic. For those who prefer to read the information, we offer the following outline of the basic steps of a Section 1031 Exchange.
Prior to Closing of the Relinquished Property
IRS Regulations require that the exchange documentation be in place prior to the closing on the property being relinquished or disposed of. Once you determine that you should structure your transaction as a Section 1031 Exchange, the next step is to add an Addendum to the contract for the sale of the property. This Addendum, while technically not required, is suggested in order to show the intent to do an exchange, permit assignment of the contract to the Qualified Intermediary (QI), and to reassure the buyer that there is no additional expense or liability for the buyer.
Relinquished Property Addendum
Once the contract on the property being relinquished has been ratified, a copy of the contract should be provided to the Qualified Intermediary (or “QI”), along with the contact information of the attorney, and the title company, settlement agent, or escrow agent who will be conducting the closing.
The QI then prepares the required Exchange Agreement, the Assignment, and the Notice of Assignment, and provides this document package to the taxpayer and counsel, and provides instructions to the settlement agent. These documents must be signed and delivered prior to the closing (or the very latest, at the closing).
After Closing   
The settlement agent should wire the funds directly to the QI, and forward copies of the settlement statement and other closing documents to the QI, either electronically or by overnight delivery.
45-Day Identification   
Within 45 days of the transfer of the first relinquished property, the taxpayer must provide an identification of the potential replacement property/properties to the QI. The Regulations provide different identification options: (i) if the replacement property is received before the end of the 45-day identification period, it is considered identified; (ii) identify no more than three alternative properties, regardless of fair market value; (iii) if the taxpayer identifies more than three properties, the total fair market value should not exceed 200% of the value of the property relinquished; (iv) if identifying more than three properties, with total fair market value exceeding 200%, then the taxpayer must actually acquire a minimum of 95% of the identified fair market value. A more detailed discussion of the identification requirements is contained in this post.
IRS Regulations require the identification of replacement properties be in writing, be signed by the taxpayer, and delivered to the QI. Properties should be identified by street address and/or legal description, or other readily identifiable means, such as “the Mayfair Apartment Building, Collingswood, NJ.”
After the 45-day period has expired, only those properties that were properly identified may be acquired as replacement properties and be part of the exchange. No new properties may be identified after the 45-day identification period.
The identification may be revoked or amended at any time during the 45-day identification period and new replacement property may be identified. However, this also must be done in writing, be signed by the taxpayer, and be delivered to the QI before the end of the identification period.
Identification of Property to Be Built   
The regulations provide special rules for the identification and receipt of replacement property to be built. The identification requirement for the property to be built will be met if the identification provides “a legal description for the underlying land and as much detail is provided regarding construction of the improvements as is practicable at the time the identification is made.”  Note: Improvements to be made to property already owned by the taxpayer are not considered like-kind and cannot be used as a replacement property in a 1031 exchange.
180-Day Exchange Period   
The taxpayer must complete the acquisition of the identified property/properties within 180 days from the transfer of the first relinquished property – or the due date of their tax return, whichever date is earlier. Taxpayers who start their 1031 exchanges after October 15 may want to consider filing for an extension on their income taxes in order to obtain the benefit of the full 180-day exchange period. Obtaining an extension requires filing IRS Form 4868, and provides an extension on the due date of the tax return only, not on the 180-day exchange period.
Prior to Transfer of the Replacement Property   
When an offer is made on a desired replacement property, an Addendum may be added, stating that the transaction is part of a like-kind exchange, that the contract may be assigned to the QI, and that there is no additional liability or expense to the sellers. As with the addendum for the relinquished property, this is technically not required to comply with Section 1031.
Replacement Property Addendum
Once the QI receives a copy of the contract to purchase the replacement property, the QI will prepare the appropriate Assignment of Contract, Notice of Assignment, and instructions to the settlement agent. The QI will coordinate with the taxpayer, taxpayer’s counsel, and the settlement agent, and wire the exchange funds to the settlement agent.
Reporting the Exchange – IRS Form 8824
As part of the tax return for the year that the relinquished property was transferred, the taxpayer will report the exchange on IRS Form 8824, Like-Kind Exchange.