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Step by Step 1031 Exchange:
Please note: 1031 exchanges may have myriad variations. The steps are merely a simplified illustration of the process so you can see the events that usually take place.
Please see the following steps:
Step 1. Retain the services of tax counsel/CPA. Become advised by same.
Step 2. Sell the property, including the Cooperation Clause in the sales agreement. Make sure your escrow officer receives the EZ form, completes it, and faxes it to Haven Exchange.
Step 3. Enter into an 1031 exchange agreement with Haven Exchange, in which Haven Exchange is named as principal in the sale of your relinquished property and the subsequent purchase of your replacement property. The 1031 Exchange Agreement must meet with IRS Requirements, especially pertaining to the proceeds. Along with said agreement, an amendment to escrow is signed which so names Haven Exchange as seller. Normally the deed is still prepared for recording from the taxpayer to the true buyer. This is called direct deeding. It is not necessary to have the replacement property identified at this time.
Step 4. The relinquished escrow closes, and the closing statement reflects that Haven Exchange was the seller, and the proceeds come to Haven Exchange. They are placed with Union Bank of California in a fully guaranteed money market account. The closing date of the relinquished property escrow is Day 0 of the exchange, and that’s when the exchange clock begins to tick. As part of our 1031 Exchange program and service, Haven Exchange sends a letter to the taxpayer, advising them of the amount of proceeds, the date of the closing of escrow according to the escrow closing statement, and the dates of the 45th and 180th days. A form for identification of replacement properties accompanies this letter, though it is not necessary to use a form to identify replacement property.
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