4 Steps to an Exchange

PLEASE CONTACT US AT 877.298.1031 FOR AN EXPERIENCED QUALIFIED INTERMEDIARY IN YOUR AREA.

How do I get started?

Compass Investment & 1031 Exchange, through it's Broker Dealer, Berthel Fisher & Company Financial Services, Inc., maintains relationships with many of the largest and most experienced sponsors in the business. Many of the sponsors are large real estate companies or pension advisors that have been through several market cycles.

Each prospective purchaser should seek the advice of their own independent tax advisor as to Section 1031 and other tax issues. The following checklist is made available as a guideline to help all parties through a smooth transaction:

STEP 1
Find an experienced Qualified Intermediary (QI) to assist you with the exchange as early in the sale process as possible. We have a number we can recommend.
Key points to consider in selecting a QI are:
• Knowledge and experience of the staff
• Local assistance for your real estate agent, CPA and attorney
• Safety of your funds while being held by the QI. You should require a QI to provide insurance bond coverage.

STEP 2
Instruct your real estate agent to include an "Exchange Cooperation Clause" as an addendum to the purchase and sale agreement on the relinquished property. Sample language might look like:
"Buyer hereby acknowledges that it is the intent of the seller to effect an IRC Section 1031 tax deferred exchange which will not delay the closing or cause additional expense to the Buyer. The Seller's rights under this agreement may be assigned to_______________, a Qualified Intermediary, for the purpose of completing such an exchange. Buyer agrees to cooperate with the seller and Qualified Intermediary in a manner necessary to complete the exchange."

STEP 3
Contact your QI as soon as possible after escrow is opened or after entering into the purchase and sale agreement and advise them of your desire to do an exchange well in advance of the closing date. The QI will draft the appropriate Exchange Agreement, Assignment and Exchange Closing Instructions so they can be executed prior to closing on the property being sold.

STEP 4
Identify a replacement property. Sellers have a maximum of 180 calendar days from the closing of the initial sale to complete the exchange. Within the first 45 days of this period a seller must designate candidate properties and properly identify them to the IRS. The funds in a trust account can be used as earnest money for designated property once all IRS requirements for a 1031 transaction are met.

What are the Identification Rules?
• Three Property Rule - The Exchanger may identify three (3) properties of any value; or
• 200% Rule - The Exchanger may identify more than three (3) properties if the total fair market value of what is identified does not exceed 200% of the sale price of the relinquished property: or
• 95% Exception - If the Exchanger identifies more that three (3) properties and the total value exceed 200% of the sale price of the relinquished property, to have a successful exchange, the Exchanger must acquire 95% of the fair market value of what was identified.
If no new properties are identified in the first 45 days or no designated transaction is completed during the full 180 day period, the sale proceeds will be taxed at the prevailing capital gains rate.