Anyone have a good, in-depth summary of the mechanics behind 1031 Exchanges?
Something that might be more detailed than what's easily google-able. Thanks.
[{"id": "eslbdvf", "text": "It might help to talk to a qualified intermediary who can walk you through the whole process.  [https://legal1031.com/1031-basics/basics/1031-exchanges-a-checklist/](https://legal1031.com/1031-basics/basics/1031-exchanges-a-checklist/)\n\nIs this too basic?", "replies": [], "depth": 1}, {"id": "etizxeb", "text": "In short:\n\nA potential exchanger lists their property, enters into contract with the buyer and opens escrow. Before closing, the seller engages the services of a Qualified Intermediary by entering into an Exchange Agreement (to be valid it must expressly limit the exchangers access to funds during the exchange), and an Assignment Agreement (allowing the QI to assign into the sale agreement permits the QI to transfer the property to the buyer and accept closing funds for the exchange account). Once the sale closes, funds are wired from escrow to the QI and deposited into a segregated exchange account for the exchanger. \n\nThe day of closing triggers the start of the 45 day Identification Period and 180 day Exchange Period. The exchanger has 45 days to identify replacement property/ies and 180 days to close on identified property/ies. (There are various rules that apply here and should be looked at in depth). \n\nFor a fully tax deferred exchange, the exchanger must reinvest the net sale proceeds from the Relinquished Property (sale) into the Replacement Property and purchase Replacement Property at equal or greater value than their sale. However, exchangers may do a partial deferral wherein they either purchase Replacement Property lower in value than their sale, or retain some of the cash from the sale, known as \"boot.\" The different between the property value or cash boot retained becomes the new taxable gain. \n\nOnce the exchanger finds suitable Replacement Property, she enters into contract for the property and notifies the QI. The QI assigns into that contract to become the buyer as well. This permits the QI to wire funds for the deposit and closing of the property and transfer the property to the exchanger. \n\nAfter all the identified replacement property is purchased, or the exchange is otherwise over, the exchanger will file Form 8824 with the IRS indicating the participation in a 1031 exchange. This is where the IRS knows the details of the transaction. Now, the exchanger has rolled the previous tax basis of the relinquished property into the replacement property. \n\nTo keep in mind: only investment (rental producing) property or property in use for trade or business may by exchanged. The exchanger must exchange into other like kind property. Like kind properties include land, residential, commercial, etc. Essentially any real estate property. Exchangers may exchange out of a residential into a commercial as well. \n\nThe same taxpayer must begin and complete the exchange. The IRS sees the relevant SSN or FEIN of the entity exchanging. The most straight forward is an individual selling and purchasing (or the same legal entity). However,  a single-member LLC (or husband and wife LLC's in community property states and revocable trusts) that are pass-through and disregarded entities may sell property in an exchange and acquire property under the individual(s) names (or vice-versa). For example, ABC LLC a single-member LLC whose underlying taxpayer is John Smith sells property, but John Smith as the individual purchases the replacement property. This is fine. The taxpayer remains the same. These scenario's usually arise when institutional lending enters the picture and the lender will not lend to the LLC or trust. \n\nHere's an example:\n\nSusan purchased a rental property in 2005 for $400,000 and put an additional $50,000 in capital improvements. Her basis is now $450,000 and in 2012 she enters into contract to sell the rental home for $700,000. Assuming a combined capital gains tax rate of 30%, Susan would incur a $75,000 tax bill on her $250,000 profit. To defer the capital gains tax, Susan engages a Qualified Intermediary and enters into an Exchange Agreement. At closing, the settlement agent wires the funds into Susan\u2019s exchange account. While the Qualified Intermediary safeguards the funds, Susan timely and validly identifies a duplex as replacement property before the 45 day deadline. Within 180 days from closing her sale, she enters into contract and directs the QI to wire all the funds for the purchase of the identified replacement property priced at $900,000. Susan has successfully completed a 1031 exchange by exchanging investment property for other like kind investment property meeting the deadline requirements, remaining the same taxpayer throughout the exchange, and reinvesting all her equity into a property value higher than her sale.", "replies": [], "depth": 1}]