1031 Property

There are many benefits you can expect when you participate in a 1031 property exchange.  It is the realtors who usually suggest the business owner take advantage of this benefit if they know the investor wants to sell his or her property with the intention of acquiring another. There are many ways for this transaction to be completed and one of the most common ways is through using an intermediary. This is because most of the 1031 exchanges that occur use the delayed exchange structure so intermediaries will definitely be helpful in this case.

Aside from the basics though, there are 1031 terms you should be familiar with to be able to complete a 1031 property exchange properly so you will be able to defer your capital gains taxes.

1031 Exchange Verbiage

The 1031 exchange verbiage is usually placed on the agreement between the buyer and the seller wherein both parties are aware that the particular property under discussion will participate in a 1031 property exchange.  Typical 1031 verbiage will have some statements for both the buyer and the seller. For example, it would state that the seller has the option of placing this transaction under the 1031 exchange rule so that he will be able to take advantage of the tax-deferred benefits.  It would further state that the buyer will cooperate provided that he would not be the one to shoulder any additional costs that might arise from these transactions.

Then the accommodation agreement would have a provision for the buyer that states that the offer is only conditional on the part of the seller but that there is no cost entailed from this transaction.  The seller would have granted the buyer permission to give the contract to an intermediary for him to benefit from it.  You should note though that the 1031 exchange verbiage is not necessary, especially if it would put the investor at a disadvantage.

Assignment of contracts

Another process you need to be aware of when you want to pursue a 1031 transaction is the assignment of contracts.  Here, the realtor will know it the buyer wants to give the contract to an intermediary for an exchange to occur.  In some contracts, the buyer needs to have the permission of the seller in order to take advantage of the 1031 exchange benefits.

Settlement statements

The 1031 exchange provision also doesn’t impose any requirement with regards to the settlement statements. However, there are laws in some states such as Colorado, which require properties under insurance regulations to have settlement accounts.  However this rule doesn’t apply to transactions that involve an intermediary.
There are many other aspects of conducting a 1031 exchange that you need to be aware of.  But it is important to start with the basics first in order to understand the benefits you can expect from this provision and what you should do to take advantage of this provision.  Truly, the 1031 exchange provision is something every business-minded person can benefit from if he does this process properly.