The sale of a relinquished property and reinvestment in a replacement property are converted into an exchange by means of an Exchange Agreement and the services of a Qualified Intermediary like our company– a fourth party who helps to ensure that the exchange is structured properly.

The most important aspect of a 1031 Exchange is ensuring that the Exchangor does not have constructive receipt of the proceeds from the Relinquished Property. Funds that are disbursed directly to the seller at closing are ineligible for tax deferment under a 1031 Exchange. As the Qualified Intermediary, Ten Thirty-One Exchange Corp. holds the proceeds from the sale of the Relinquished Property until they are disbursed for the purchase of Replacement Property.

Typically, the proceeds from the Relinquished Property are wired to us at closing, where they are held in a client trust account, until such time as they are needed for the purchase of Replacement Property, and then they are wired directly to that closing.

During the Exchange Period the Exchangor does not have access to the funds, and funds can only be disbursed for the purchase of Replacement Property. An Exchangor may elect to withhold a portion of their proceeds from the exchange, however that amount would be subject to capital gains tax.

In order to completely defer capital gains tax, the Replacement Property must be of equal value and equity to the Relinquished Property. For example, if an Exchangor has a $100,000.00 debt on their Relinquished Property and they sell that property for $400,000.000, the Replacement Property must have a value of at least $400,000.00 and the Exchangor will need a mortgage of at least $100,000.00.

We encourage you to consult a tax professional to advise you on the benefits and consequences of doing a 1031 exchange.

A Ten Thirty-One Exchange Corp. 236 Montezuma Ave.
Santa Fe, NM 87501
505-982-1031 phone
505-982-5211 fax