Have a potential sale contract for your soon-to-be relinquished (sale) property? First, speak with your real estate attorney or 1031 exchange company to acquire a 1031 clause for your contract to disclose your 1031 Exchange intent. Once America’s 1031 Exchange receives your signed contract and other requested information from your consult call, we will open your exchange. At that point you will receive three sets of documents to have signed! The day of closing on your relinquished (RQ) property, the proceeds from the sale will be sent to the Qualified Intermediary (QI) on your behalf until you acquire a replacement property. This event will also trigger your 45-day and 180-day deadlines!
Your next step is the 45-day identification deadline; this is when you identify your potential replacement property(ies). There are 3 rules you use to identify replacement property to keep your exchange in compliance with the tax code regulations. This includes the 3-property rule, 200% rule, and 95% rule. To achieve complete tax deferral, all net proceeds of the relinquished property(ies) sale must be utilized and have equal or greater debt, if any, on the purchase of your replacement property.
- The Three-Property Rule: Identify up to three properties of any value.
- The 200% Rule: Identify any number of properties, as long as their total fair market value does not exceed double of the value, 200%, of the relinquished property.
- The 95% Rule: Identify any number of properties of any value, but you must acquire at least 95% of the total value of the properties identified.
Once replacement property(ies) is identified, exchange funds can be used to acquire the purchase property prior to the 180-day deadline. This purchase contract should also include the 1031 exchange language. Similar documents are disbursed as they are with the relinquished property along with a disbursement authorization form. Upon closing, our exchange officer will sign off on the settlement statement following your signature and funds are sent to closing(s). If there are no funds left or all intended replacement properties have been purchased, your exchange closes and you will be emailed a final report.
If no replacement properties are identified within the 45-day window, your exchange will close on day 46 and funds will be sent to you after completion of a disbursement form. If no purchases are made prior to the 180-day deadline but property was identified, your exchange closes day 181 and funds will be sent to you after completion of a disbursement form.