Deferred Exchange by Steps
Deferred Exchange by Steps
SAMPLE DEFERRED EXCHANGE: STEP BY STEP
1. Exchangor enters into contract to sell old property to Buyer.
2. Exchangor enters into exchange agreement with Intermediary.
3. Intermediary agrees to take old property and sell it to acquire funds to buy new property for Exchangor.
4. Exchangor assigns to Intermediary his rights to sell old property and all his other rights under contract.
5. Exchangor gives notice of the assignment to Buyer of old property.
6. Intermediary instructs closing agent and Buyer that Exchangor will deed directly to Buyer in order to avoid duplication of documentary stamps. Intermediary executes closing statement showing proceeds to Intermediary and Intermediary receives all the net proceeds. Intermediary, as required by the exchange agreement, allows Seller no possession or control over the proceeds.
7. Exchangor locates up to 3 potential replacement properties and designates them as potential acquisitions to complete his exchange in a signed writing delivered to Intermediary within 45 days of the closing of the sale of the old property. If the Exchangor is to defer all capital gain, Intermediary must use all the cash proceeds from the relinquished property to buy replacement properties with an aggregate purchase price at least equal to the selling price of the relinquished property .
8. Exchangor signs a contract to purchase the new property and places a deposit on the contract.
9. Exchangor assigns the contract to purchase the new property and the rights in the deposit to Intermediary. Intermediary can reimburse the deposit to Exchangor upon assignment.
10. Exchangor gives notice of the assignment to the Seller of the new property.
11. Intermediary instructs Seller and closing agent that, although Intermediary is the buyer of the new property, Intermediary has agreed to acquire the property to complete an exchange for Exchangor, so have the deed pass title directly into Exchangor in order to avoid duplication of documentary stamps.
12. Intermediary closes the contract to purchase by delivering the proceeds from his sale of the old property directly to the closing agent for the new property in exchange for the deed into Exchangor. Title must pass into Exchangor within 180 days of the closing of the sale of the old property. Intermediary signs the closing statement for the new property as buyer. Any additional funds necessary to close the purchase of the new property can come from the Exchangor.
This is a sample of one pattern of deferred exchange used by some attorneys. This pattern is shown for general information and discussion purposes only. Details have been omitted in order to demonstrate the pattern. No one should attempt to structure or document a tax deferred exchange without the guidance of a tax attorney. See Section 1031 Exchanges.
Examples of complicating factors:
Mortgage financing of the new property for additional funds to acquire the new property. Refusals and inadvertent failures of other parties to the transactions to cooperate. Construction on the new property not completed within the 180 days. Changes in the intended use after acquisition of the new property. Substantial personal use of the old property. Personal property included in the sale. Contracting to purchase the new property before a buyer is found for the old property.
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