1031 Exchange: A Step by Step Guide
Investors unfamiliar with 1031 Exchanges may envision
the process as being intimidating and difficult. In reality,
it doesn’t have to be. In order to successfully complete
an exchange, investors must simply follow the following
Set up an Exchange Account
The 1031 Exchange account MUST be opened before close
of escrow on the property being sold. Waiting until the
last minute is not recommended, but Asset Exchange
Company (AEC) can open a ‘rush’ account if necessary.
Insert the Appropriate Language into the Sales Contract
The appropriate 1031 language should be added to the
Purchase & Sale contract for the property being sold.
AEC can provide you with such language if necessary.
Execute the Exchange Agreement
At the close of escrow, AEC will coordinate with the
escrow company to obtain all of the necessary signatures
on all exchange documentation.
Locate Replacement Property
The most difficult process of the exchange can often be
finding the right replacement property within the required
timeframe. The IRS requires that potential replacement
property is identified on or before day 45 of the exchange
and property must be acquired on or before day 180 of
Submit 45 Day Identification Letter
The Identification Letter MUST be submitted no later
than day 45 of the exchange. All potential replacement
properties must be identified in writing in an
Request Funds for Deposits
Money for deposits can be disbursed from the
exchange account. Clients are required to send AEC
the “Disbursement Form” indicating how much money
needs to be distributed and to whom. Deposits can
also come from the clients personal funds and then
reimbursed to the client at the closing of the property.
Submit “Replacement Property Form”
Once a replacement property has been decided upon
and there is likelihood of closing, the exchanger will
need to submit the “Replacement Property Form” to AEC
indicating who they are working with to buy the property.
Obtain Appropriate Signatures
At the close of escrow of the replacement property, AEC
will work with the new escrow company to obtain all
appropriate signatures for all exchange documentation.
Depending on the nature of the transaction, additional
steps may need to take place. Asset Exchange Company
will work closely with the client to ensure a successful