Tax Deferred Exchange

The simultaneous tax-deferred exchange can be performed in three different ways. The first way involves simply swapping or trading deeds with another party. With this type of exchange, a qualified intermediary (QI) is not required. Unfortunately, finding a willing participant with whom to swap deeds can be difficult. Furthermore, in this type of exchange, both properties must be equal in terms of equity and debt. If they are not equal, one party will have to recognize a boot which is taxable.

Another type of exchange, the three-party exchange, involves using an accommodating party to help in facilitating the process on behalf of the exchanger. No QI is needed for this method, and there are two different three-party exchange formats. One format calls for the passing of the title through the buyer, while the other format allows for the passing of the title through the seller. This method is known for having many disadvantages. One of the main disadvantages is related to the use of the accommodating party. Many advisors discourage the use of the three-party exchange.

The third method is the exchange with a QI. The QI structures the exchange, performing various tasks--including providing written instructions to those involved in closing, preparing the exchange agreement, and handling other necessary documents. The QI also protects the exchanger from possible receipt problems. The only real disadvantage to this method is the cost of paying for the QI's services.

At TM 1031 Exchange, we have hundreds of 1031 compliant properties and our National Referral Network and an abundance of resources for both investors and brokers. To learn how we match investors to properties, contact us toll-free at 1-877-4TM-1031 or via e-mail here team@tm1031exchange.com.