1031 Exchange Process
Seven Steps to a Successful Exchange: Thanks for contacting Bankers Exchange Services
We’re happy to present you with this quick and easy guide to a successful exchange. Please read it before we talk again, and you’ll see just how smoothly your exchange can go.
An important part of your exchange is the timing. Deadlines are very important to the process, and the steps you will see below must be handled in a specific order. The IRS guidelines for 1031 Tax-Deferred Exchanges allows 45 days from the close of escrow to identify what your replacement property (or properties) will be for the exchange. It also states that the 180th day of your exchange is the deadline for acquiring your replacement property (or properties). Therefore, when we refer to specific dates, we are telling you where your exchange stands within IRS rules, and letting you know how important it is that you meet these time requirements. While we will issue you a receipt letter and make a courtesy telephone call to advise you of upcoming dates, it is your responsibility to remember that they are very important and to get them on your calendar, starting with the close of escrow.
Please help us to have the correct documents in our office by the necessary dates. You can even follow along and check things off this list as we progress.
When should I set up my Exchange?
Ideally, you will want to set up your exchange with Bankers Exchange Services well in advance of the closing of your Relinquished Property. Also, we recommend that you state in your Purchase and Sale Agreement that you intend to do a 1031 tax deferred exchange. We are always willing to try to accommodate your last minute request to set up a new exchange, but keep in mind, we will need time to coordinate with the settlement agent to get the necessary information from them in order to properly prepare your exchange documents. Once we have prepared your exchange documents, we will send them to the settlement agent for you and the buyer to sign at your closing. Your exchange must be set up and all exchange documents executed prior to the closing of your relinquished property for your exchange to qualify.
Whom do I notify that I will be doing a 1031 Tax-Deferred Exchange?
Bankers Exchange Services, a Qualified Intermediary (If you have made an initial call to us, please be sure to contact us again once you have opened up escrow so that we can obtain the details of your sale transaction as well as the settlement company contact information).
Purchaser/Seller (a clause in the Purchase and Sale Agreement of your intent to transact a 1031 exchange with no liability or cost to purchaser).
Escrow Company or Settlement Agent (Please let the escrow officer or settlement agent know that you intend to handle the transaction as a 1031 Tax-Deferred Exchange prior to having them draw up the documents).
How is my Exchange set up?
Setting up your exchange is simple! You can call us and we will take the information from you over the phone, or you can complete the online “new exchange” order form. We can also fax a new exchange order form to you, your realtor or anyone else who will be assisting you with your transaction. Shown below is some of the information that we will need should you decide to call us to open up your exchange order.
Your mailing address, daytime phone number, fax number and e-mail address, if any.
Address of the property you are selling, street address or parcel number if it is vacant land; city, county and state the property is located in.
Contract sales price.
Buyer’s name. Is this party related to you?
Escrow Company or Settlement Agent, Escrow officer or Settlement agent’s name, address, phone number, fax number, e-mail address and Escrow number.
What percentage of the property do you own?
Is any portion of the relinquished property used as your personal residence?
Is your spouse on title to the property? Is your spouse going to be on title to the replacement property?
How do you hold title to the relinquished property? Individual, Trust, Partnership, etc.
After you set up your new exchange with Bankers Exchange Services …
We will contact the Escrow Company or Settlement Agent and order a copy of the preliminary title report so that we can accurately prepare your documents and forward them to the settlement agent for you and the buyer to sign at the closing. We will send you a copy of your exchange documents for your review as well as the necessary replacement property identification forms for your future use. Prior to closing, the settlement agent will send a copy of your settlement statement to us to read and approve and return to them. Now we wait for your escrow to close and for the exchange proceeds to be wired to Bankers Exchange Services.
After your Escrow closes …
After closing, the exchange proceeds are wired into a trust account that Bankers Exchange Services has set up for you. Once we have confirmation that the funds have been received and we have obtained the final settlement statement to confirm the closing date, we will send you a “Receipt Letter” indicating the exact amount of the wire we received, the final closing date, and your 45th and 180th day.
What should you do next?
Send us your identification letter no later than midnight of the 45th day. This date can be confirmed in the receipt letter sent to you previously. If you don’t have the Identification letter form, or you have any questions about the dates or identifing process, please don’t hesitate to contact your exchange specialist for clarification. We will be happy to send you a new identification letter form and answer any questions you may have. Your identification letter is your written notice to us of which property(ies) you are declaring as your replacement property(ies) for your exchange. The IRS does not grant an extension of the 45th or 180th day. Your identification letter can be faxed or mailed to us. If you decide to mail your ID letter, please be sure that it will be postmarked on or before your 45th day. Should you decide to fax it, a follow up phone call to verify receipt is recommended.
Let us know when you open up Escrow on your Replacement Property
When you have opened up escrow on an identified replacement property, please provide us with the details of the purchase and the contact information for the escrow company or settlement agent that you will be using. A replacement property information form will be provided to you for this purpose. Please allow us adequate time to order the preliminary title report and prepare your replacement property exchange documents prior to your closing date.
Drawing up the Replacement Property Exchange Assignment Agreement
We are now ready to draw up your replacement property exchange documents and send them to the Escrow or settlement agent for signing by you and the seller at the closing. The settlement agent will send us a copy of the estimated settlement statement to read and approve and return to them. When the settlement agent is ready to close escrow, they will request a wire from us for the closing funds. (usually the day before closing.) If there are unused funds in your exchange account and you do not intend to acquire additional property, we will send you a Refund Letter to complete and return to us. Pursuant to a written instruction, we will return the residual funds, less any mandatory state withholding, to you. (Note: Unused exchange proceeds “boot” are subject to individual state withholding requirements for the state that the relinquished property was sold in)
After the Exchange is complete …
When you have acquired all of the replacement property that you intend to, and all funds in your exchange account have been disbursed, we will send you a final closing letter. This letter will provide you with an accounting of all money in and out of your exchange account. In addition to this letter, be sure to keep copies of your exchange agreements, Identification letter and all escrow settlement statements for your records as you will need them for your future tax return preparation.
Bankers Exchange Services has offices in Walnut Creek and Oakland and serves the Greater Bay Area and in particular, the East Bay region and will gladly facilitate your real estate 1031 exchange transaction anywhere in the United State or US Territories. In Southern California, we have offices in Long Beach. Bankers Exchange Services also offers specialized expertise in the following communities:
