1031 Exchange
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The following notice is provided by Asset Exchange Company (Intermediary) to all exchange clients (Exchangor).  All Exchangors shall acknowledge receipt of this notice by signing at the bottom of the document.  This is a partial list of most common issues.  

Please read this notice carefully and consult with your tax advisor.  If you are not consulting with a tax advisor on your exchange transaction, you are creating significant risk to your transaction.    
 

• Exchange Proceeds:  Exchange regulations restrict distributions of exchange proceeds to Exchangor.  Please carefully read Sections Nine and Ten of Phase 1 (Relinquished Property) Exchange Agreement for information on such restrictions. 

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• Funds Security:  Please use extreme caution if distributing out of pocket cash during exchange.  Intermediary will never ask Exchangor to distribute out of pocket cash directly to Intermediary.  If escrow company or closing agent requests distribution of out of pocket cash, please call company main line to confirm wire instructions and when feasible, hand delivering cashier’s check to company is safest procedure.

 

• Email Communications:  Intermediary will only use email addresses ending in AX1031.com.  Please do not respond to emails purported to be from Intermediary whose sender’s email address does not end in AX1031.com.  Please also takes steps to make sure Intermediary emails are not entering spam or junk email folders.

 

• Seller Financing “Carryback Notes”:  If Exchangor is providing a loan to the buyer of the Relinquished Property, restrictions will apply.  If applicable, please contact Intermediary immediately.

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• Related Party Transactions:  If a person or business you are related to in any way is involved in purchasing the Relinquished Property or selling the Replacement Property, please contact your tax advisor immediately for additional guidance.

 

• Personal Use of exchange property:  If the Relinquished Property was at any time used in part, or in whole, for Exchangor personal use, including a primary residence or vacation home, please consult with your tax advisor for additional guidance.  Please also do so if Exchangor plans such use of Replacement Property.

 

• Replacement Property Improvements:  Improvements made to the Replacement Property after Exchangor acquisition will not count towards the value of the exchange.  If applicable, please contact Intermediary immediately. 

 

• Earnest Money Contract Deposits:  Exchangor strictly responsible for payment and possible refunds of Replacement Property contract deposits.  If Exchangor would like Intermediary assistance in making deposits, written notice confirmed as received by Intermediary is required with 48-hour advanced notice. 

 

• Pre-Closing Costs:  Given current exchange regulations, exchange funds cannot be distributed from your exchange account to pay for pre-closing costs such as loan deposits or property inspections.  Such costs must be paid with out of pocket funds.   

 

• Tax Reporting:  Individual tax returns for the tax year in which the Relinquished Property sold must not be filed until all the Replacement Property is acquired and exchange complete.  Deadline extensions may be required.  Exchangor shall be solely responsible for reporting results of this exchange on personal tax returns.
  
  PLEASE NOTE, THE POINTS BELOW HAVE BEEN SPECIFICALLY MENTIONED BY THE CALIFORNIA FRANCHISE TAX BOARD AS IMPORTANT AUDIT POINTS.

   

• Exchange Timelines:  All Replacement Property must be identified in writing by Exchangor no later than 45 days after the close of the Relinquished Property.  Restrictions on number or value of properties identified will apply.  It is strictly Exchangor’s obligation to properly identify on time.  In additional, all Replacement Property must be acquired within 180 days of Relinquished Property closing.   

 

• Closing Costs:  Certain costs related to the sale and purchase of exchange property may not be considered exchange expenses and may be taxable if paid with exchange funds.  We highly recommend Exchangor delivers its closing statements to Exchangor’s tax advisor prior to the closing for further guidance.
     

• Tax Deferral:  In order to fully defer taxes, Exchangor must re-invest all of the equity “cash” proceeds from the sale of the Relinquished Property AND purchase Replacement Property that is equal or greater in value to the Relinquished Property.
   

• Partial Exchanges:  If Exchangor only partially completes its exchange, the resulting taxable gain will not be prorated.  Every dollar not reinvested will be subject to tax.  In other words, if Exchangor sells for $1 million and purchases for $900,000, such exchange will not result in 90% of taxes being deferred.
   

• Same Taxpayer Requirement:  The same taxpayer who sells the Relinquished Property must acquire the Replacement Property.  Particular attention required for LLC’s as such entities can be considered separate taxable entities, or disregarded tax entities.  If acquiring Replacement Property with co-owners, please discuss with your tax advisor and avoid formation of a formal tax partnership.   

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• No Legal or Accounting Advice:  Applicable laws prohibit Intermediary from providing legal or accounting advice.  Do not rely on Asset Exchange Company or any company employee for such advice.  All legal and accounting advice should be provided by Exchangor’s personal advisor.