Handling the closing of a §1031 tax deferred exchange is almost as easy as closing a typical sale transaction! The main difference is the following documents must be executed prior to the relinquished property closing.
QUALIFIED INTERMEDIARY DOCUMENTS
You must select a qualified intermediately (QI) who will prepare the following documents for your signature:
1. Exchange Agreement
2. Assignment Agreement
3. Notice of Assignment (also signed by the Buyer)
4. Qualified Exchange Account Agreement
To properly reflect a §1031 tax deferred exchange; some minor revisions to your standard documents are required:
A. Your QI should be shown as the Seller on the Seller’s Settlement Statement. For example, show the Seller as QI Company Name inserted here, as Qualified Intermediary for (Exchanger’s name inserted here). All other documents, which are common to the area, (such as Escrow Instructions in some states) should also show your QI as the Seller.
B. Note: Settlement statements that show the Exchanger as the Seller, instead of their QI as the Seller, could be considered a potential “red flag” to the IRS.
C. The Exchanger will need to “READ AND APPROVE” all documents and statements prior to having their QI sign as the Seller.
D. Prepare the 1099S Form in the name of the Exchanger. Check Box #4 on the form which indicates that other property will be received as part of the consideration.
PREPARING THE DEEDS
Prepare the deed directly from the Exchanger to the Buyer. The QI normally prepares one deed for each phase of the exchange, unless the Exchanger is doing a reverse or improvement exchange. Selecting an experienced QI is one of the best things you can do to assure a smooth and orderly exchange.
TM 1031 Exchange and Asset Preservation, Inc. do not give tax or legal
advice. The information contained herein should not be relied upon as a
substitute for tax or legal advice obtained from a competent tax and/or
(c) Copyright 2005 Stewart Title Guaranty Company