Employing a Qualified Intermediary is necessary in accordance with the tax code section 1031 that states taxpayer must assign interest as seller of relinquished property to Qualified Intermediary who will hold proceeds until the replacement property(s) is/are purchased.

It is important to include language in the contract for both the sale and replacement properties. This is standard in the transaction process and clearly communicates to the other party that you are completing a 1031 exchange and that there are no costs or delays to them in the transaction.

Example:

buyer (or seller) hereby acknowledged that seller (or buyer) intends to conduct an irc 1031 tax deferred exchange which will not delay the closing or cause additional expenses to the seller (or buyer).

As part of the exchange amendment to Escrow Instructions, the Escrow/Title company is instructed to directly deed the property from Exchanger to Buyer.

Exchanger must notify Exchange Accommodator in writing of potential replacement properties by the 45th day after the sale of the relinquished property. This form will be provided at the closing of the sale.There are three Rules of Identification: (Exchanger must fall under only one of the following)

I. Three Property Rule: Exchanger identifies one, two, or three properties of any combined value and purchases one, two or three as the replacement.

II. Two Hundred Percent Rule: Exchanger identifies as many properties as they wish as long as the total sum of the properties does not exceed 200% of the Total Sales Price of the relinquished property.

III. Ninety-Five Percent Rule: Exchanger identifies as many properties as they wish as long as the exchanger purchases 95% of the total value of all the properties.

ETo ensure full tax deference, all proceeds from the relinquished property must be invested into the replacement property. Exchanger must make certain the debt replaced/assumed on the replacement property is equal to or greater than the debt relieved of from the sale. Closing of all replacement properties must occur within 180 days of the closing date on the relinquished property, or by your tax return due date if before 180 days (Please speak with your tax-preparer in regards to this matter)