Many 1031 Exchangers are unaware that the 1031 exchange industry is almost totally unregulated. For this reason you need to be aware of two very important pitfalls to avoid as you consider an exchange.
PITFALL #1, make absoutely sure that your exchange proceeds will be safe, and
PITFALL #2, ensure that you can identify new property within your statute 45 day identification period.
In addition, remember that the logistics and mechanics of the exchange are critical as well.
It is important that any exchange be carefully planned with the help of an experienced, competent and creative legal and exchange professional. Preferably one who is completely familiar with the tax code in general, not just Section 1031, and who has extensive experience in doing many different kinds of exchanges. Thorough planning can help avoid many subtle exchanging pitfalls and also ensure that the Exchanger will accomplish the goals which the transaction is intended to facilitate.
After Exchange Planning is Complete
Once the planning is complete, the exchange structure and timing are decided, and the Relinquished Property is sold and the transaction is closed, the facilitator becomes the repository for the proceeds of the sale. The money is kept in the Exchanger's Qualified Escrow Account until the Replacement Property is located and instructions are received to fund the Replacement Property purchase.
The funds are then wired or sent to the closing entity in the most appropriate and expeditious manner, and the Replacement Property is purchased and deeded directly to the Exchanger.
All the necessary documentation to clearly memorialize the transaction as an exchange is provided by the facilitator, such as exchange agreement, assignment agreement and appropriate closing instructions.