Important Considerations
  • Your exchange funds are never commingled with the funds of other exchangors. A separate, FDIC insured bank account is opened to hold your exchange proceeds during the exchange period.
Make the most of your equity position.
Types of Exchanges

The first and most important part of the exchange process is to discuss the possibilities with your tax advisor. The exchange process is a creation of the internal revenue code. Before going down this trail you need a clear understanding on how it impacts your particular tax situation. You may also want to discuss the possible use of §1031 with your real estate and legal professionals.

The process will vary for each different type of exchange (simultaneous, deferred, reverse, etc.). Since the deferred (Starker) type exchange is the most common we will use that for discussion purposes. Our example is a simple one…one property sold and one replacement property purchased.

Let your real estate professional know up front that you want to sell your property subject to a §1031 exchange. This is typically included in the listing description, and it is noted in the purchase and sales agreement.

Contact Acacia Exchange Services. Let us know what you are doing. We like to be involved from the start so we know the key players on your team.

When you accept an offer on your property and open an escrow, we will be in contact with the escrow officer to obtain the information necessary to create your Relinquished Property Exchange Agreement. This agreement will be signed by both you and the buyer of the property. This contract memorializes that the intention of all involved parties is that the sale is subject to section 1031.

At the close of escrow, the funds are wired directly from the title company into an account opened in trust for you by Acacia Exchange Services. We will always open a separate account for you. The funds are never comingled with other exchanges.

You have 45 days from the close of your sale escrow to identify possible replacement properties. You have to provide Acacia Exchange Services with a list of possible properties you will purchase with the exchange proceeds. We will provide you with a simple form you can use to make this identification. There are a 3 ways to satisfy this requirement:

1. Three property rule: Identify up to 3 properties without regard to their value; or

2. The 200% rule: Identify more than 3 properties as long as their combined fair market value does not exceed twice (200%) the value of the relinquished property; or

3. The 95% rule: Identify any number of properties of any value as long as you acquire 95% of the Fair Market Value of the identified properties.

You have 180 days from the close of your sale escrow to purchase the replacement property. Please note that 180 days is not 6 months…you have to count the days (of course, we do this for you).

When you enter into escrow for your replacement property we will again contact the title officer and get the information needed to create a Replacement Property Exchange Agreement. This is the mirror image of the Relinquished Property Agreement. It is signed by you as the buyer of the property and also by the seller. Again, the purpose of this agreement is to make it clear that the intentions of all parties is that the purchase is a replacement property in a §1031 transaction.

At close of escrow the funds held in your account are wired directly to the title company and used in the purchase of your new property.

Please realize this is a very simplified picture of an exchange transaction. In reality, this seemingly simple transaction is loaded with complexities, particularly in the area of replacement property identification. This is why good communications between your tax advisor, Acacia Exchange Services and yourself are so important.