Steps for a 1031 deferred exchange:

Exchangor finds a buyer and opens escrow.

• Ownership of the relinquished property is transferred to Exchange Facilitator.
• Ownership is immediately transferred to the buyer of the Exchangor's property.
• At the close of escrow, the proceeds are wire transferred from escrow to a bank designated by Exchange Facilitator. The funds are held in a seperate account set up for each specific transaction.
  The first half of the transaction is completed at the close of escrow. It is at this time that the Exchangor must designate a replacement property within 45 days, then complete the exchange within 180 days of the close of escrow.
• Once the replacement property is located, exchange credits (funds from the sale) will be wire transferred from the bank to the escrow handling the closing.
• Ownership to the replacement property is transferred to Exchange Facilitator.
• Ownership to the replacement property is then transferred from Exchange Facilitator to the Exchangor.
• The exchange is completed with the Exchangor giving property to the facilitator (step #1) and receiving a like kind property in return in (step #6).

Reasons to 1031 exchange:

• To Diversify:

Investors utilize 1031 tax-deferred exchanges to diversify their investments. One example is exchanging a single property for six properties. Another example is exchanging one property for a larger one. In addition, your new property usually will provide a greater tax shelter through depreciation.

 

• To Simplify:

When managing several properties becomes a hassle, an exchange will help you simplify by exchanging into fewer properties or even into one. It is often much easier to manage one property instead of several. Remember that in order to defer all capital gains tax, you must re-invest 100% of your proceeds.

 

• To Relocate:

If your investment property is too difficult to manage because it is not in the state in which you live, the exchange will help you exchange for a property in your home state. If your investment property is in a state with little property appreciation, and if you want to exchange your property for another in a more progressive region of the country, Note: Don't make the mistake of selling your property and purchasing another without utilizing a 1031 tax-deferred exchange. YOU WILL PAY UNNECESSARY CAPITAL GAINS TAX.