The 1031 Process

YOUR PHASE ONE SALE

WE MUST GENERATE YOUR 1031 EXCHANGE DOCUMENTATION PRIOR TO THE CLOSING OF YOUR SALE OR RELINQUISHED PROPERTY

It is critical that you setup your exchange and have your 1031 paperwork prepared before your closing. It only takes an hour to generate your documentation which will be executed with the assistance of your Closing Attorney or Escrow Holder. We can get started if you sedn us a copy of your Putrchase and Sale Agreement as well as the contact info for your Phase One Closer.

THE PROPERTIES YOU EXPECT TO EXCHANGE MUST BE CONSIDERED 'LIKE KIND'

The Internal Revenue Service requires that the property you sell, as well as the property you buy must be like-kind. And, like kind means one of two things. Either property held for investment, or property held for income. And definitely not your personal residence.

YOU MUST UTILIZE THE SERVICES OF A QUALIFIED INTERMEDIARY

The IRS requires that your exchange be completed with the assistance of a Qualified Intermediary or facilitator. Also, this should be a well-established firm like FYNTEX, so you know your exchange documentation will be correct and that your exchange funds will be safe in a Qualified Escrow Account between the time you buy and the time you sell.

YOU HAVE A TOTAL OF 180 DAYS TO COMPLETE YOUR EXCHANGE

You must complete your sale and purchase within a total of 180 days or whenever your tax return is due. The tax return qualifier means that if you start your exchange late in the year, you might have to file for an extension in order to receive your full 180 days.

YOU MUST IDENTIFY CANDIDATE REPLACEMENT PROPERTIES WITHIN THE FIRST 45 DAYS

Quite often this the most difficult part of any 1031 exchange. This is because while you have a total of 180 days to complete your exchange, the IRS requires that you identify some candidate or target Replacement Properties within the first 45 days of your exchange period. Usually this identification is made to your Qualified Intermediary by completing a form which is kept in your exchange file.

In addition, since the 45 day identification period moves so quickly, start looking for new property as early as possible. Also, remember that it is now possible to acquire interests in larger investment grade properties (sold in the form of a Delaware Statutory Trust) which can be purchased in denominations as low as $25,000. These investments qualify for your 1031 exchange and the properties are all professionally managed investments in which your share of the rents will be sent to you monthly.

THERE ARE THREE THINGS YOU MUST DO TO HAVE A 100% TAX DEFERRED EXCHANGE

If you want a completely tax deferred transaction you must do these three things. First, buy Replacement Property which is equal or greater than the net selling price of what you sold. Two, move all your equity from the old property into the new property. And three, replace your debt.

YOUR PHASE TWO PURCHASE

THERE ARE SPECIFIC RULES FOR IDENTIFYING THE PROPERTY YOU EXPECT TO ACQUIRE

The IRS requires the use of two rules or one exception for identifying potential Replacement Properties and this includes investments in Delaware Statutory Trusts.

The first is the three property rule, meaning you may identify up to three properties of any value.

The second rule is the two hundred percent rule, meaning you may identify more than three properties provided all the properties you identify do not exceed two hundred percent of the value of the property you sold. This is the rule in the event you are expecting to identify an investment into a Delaware Statutory Trust.

The one exception is known as the ninety-five percent exception. Essentially, you may identify more than three properties and more than two hundred percent of total identified property value, provided you acquire at least ninety-five percent of everything you identified.

BUY REPLACEMENT PROPERTY AS THE SAME ENTITY IN WHICH YOU SOLD

It is always best to buy as the same entity in which you sold. To change your vesting (to an LLC for example) in the middle of an exchange is to create unnecessary risk because the IRS could make a case that your new ownership entity had not seasoned their ownership sufficiently to qualify for deferred gain treatment under Section 1031.

INVESTMENTS IN DELAWARE STATUTORY TRUSTS CAN ONLY BE MADE BY ACCREDITED INVESTORS

If you are considering buying into a Delaware Statutory Trust as an Replacement Property, remember that they are considered securities and must be acquired through a licensed Broker-Dealer. These are representatives or firms which are appropriated licensed to disclose the underlying specifications of the properties as well as the expected financial performance.

The minimum net worth threshold for acquiring an interest in a Delaware Statutory Trust is an annual income of at least $200,000 or a net worth over $1 million, exclusive of primary residence.


DISCLAIMER:

To ensure compliance with requirements imposed by the IRS, we inform you that the information posted at this website does not contain anything that is intended as legal or tax advice, and that nothing herein can be relied upon as legal or tax advice. Further, the IRS wants us to let you know that nothing herein can be used for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein. If acting as your Qualified Intermediary in a Section 1031 tax-deferred exchange, FYNTEX cannot advise the owner concerning specific tax consequences or the advisability of a tax-deferred exchange for tax purposes. We recommend that anyone contemplating an exchange seek the advice of an accountant and/or attorney.

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  • 1875 S. Winchester Blvd, Campbell, CA 95008
  • 844-655-1031
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  • www.Fyntex.com

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