FAQs about Summit County 1031 Exchanges
Q: What is the difference between a sale and an exchange?
A: A sale is an exchange of real property for cash. Because cash does meet the requirements for "like-kind" property, the capital gains tax is not deferred. An exchange where property is traded for property is a "non-taxable" sale.
Q: What provisions are required in a Purchase and Sale Agreement to enter into an Exchange?
A: Exchanges begin with a Purchase and Sales Agreement. When a Purchase and Sale Agreement is used to begin a transaction, it should contain language which establishes the exchangor's intent and notifies the buyer of the exchange.
Examples of such contractual provisions are:
When Selling:
1031 EXCHANGE - SELLER: Buyer shall cooperate in structuring this transaction as a like-kind exchange for the benefit of Seller, as long as Buyer incurs no additional cost. Despite the anti-assignment provision of Section 7, Seller has the right to assign its rights and obligations to an entity acting as Qualified Intermediary (as defined in the Regulations under Section 1031) to complete the like-kind exchange; but no assignment shall release Seller from liability for performance of any of its obligations. In the interest of convenience, however, Seller shall convey title to the Property and Inclusions directly to Buyer on behalf of the qualified Intermediary. This subsection is not intended to waive any of the deadlines or obligations of Seller in this contract. The Seller is advised to seek the guidance of tax counsel in completing a 1031 exchange.
When Buying:
1031 EXCHANGE-BUYER: Seller shall cooperate in structuring this transaction as a like-kind exchange for the benefit of Buyer, as long as Seller incurs no additional cost. Despite the anti-assignment provision of Section 7, Buyer has the right to assign its rights and obligations in this contract to an entity action as Qualified Intermediary (as defined in the Regulations under Section 1031) to complete the like-kind exchange; but assignment shall not release Buyer from liability for performance of any of its obligations. In the interest of convenience, however, Seller shall convey title to the Property and Inclusions directly to Buyer on behalf of the Qualified Intermediary. This subsection is not intended to waive any of the deadlines or other obligations of Buyer in this contract. The Buyer is advised to seek the guidance of tax counsel in completing a 1031 Exchange.
Q: Can an investor trade from several small properties into one large one?
A: Yes. An investor can also trade out of one large property into several smaller ones. When selecting more than one property, investors must adhere to the Treasury guidelines regarding property identification.
A: How are the exchange funds protected?
Q: Funds can be held by a third party in a variety of security devices including semi-fettered accounts, letters of credit, Treasury-backed Securities and individual accounts.