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Don't try and complete your 1031 Exchange Worksheet on your own. No, Really Don't!
Completing the 1031 Exchange Forms and Agreements can be a daunting process, for any real estate investor whether a novice or a mogul. Retaining the services of a Qualified Intermediary of course will eliminate the hassles and headaches. Most Qualified Intermediary assist real estate investors complete and process the 1031 Exchange form, but it is still important for any real estate investor to understand what goes into preparing the 1031 exchange worksheet. Completing form 1031 is only the first step in the process of successfully deferring paying capital gains and depreciation recapture taxes after selling real estate investment property. The deadlines are absolute and strict for real estate exchanges so when filling form 1031, make sure you and your Qualified Intermediary pay careful attention to detail. Any mistakes that are made can be costly and fatal to an investor trying to defer paying capital gains taxes. Form 1031 is not the only form an investor and Qualified Intermediary will have to complete to satisfy the paperwork requirements for 1031 Exchanges. The following is a list other required 1031 Exchange Forms:
The Basic 1031 Exchange Forms an investor will have to complete:
- Like-Kind Exchange Agreement Form
- Qualified Escrow Account Agreement
- Assignment, Acceptance, Notice and Direction to Convey
Additionally other 1031 Exchange Forms include:
- Identification of Replacement Property 1031 Exchange Form
- Notice to Exchanger (important disclosures)
- Investment Policy and Disclosure Statement
The following is 1031 Exchange Worksheets required by the Department of Treasury/ IRS:
Additionally each state might have additional requirements regarding disclosure forms in order to complete a 1031 exchange. The following a is a list of basic requirements for any 1031 Exchange:
- Time Requirements: An investor has 45 calendar days to identify up to three potential replacement properties and 180 calendar days to close on the replacement properties from the date of the close of the relinquished property.
- Like-Kind or Greater Value: The property must be considered a like-kind or greater value investment property in order to defer paying capital gains taxes.
- Qualified Intermediary: As mentioned earlier a Qualified Intermediary will help you complete and process the 1031 Exchange Forms as well as be in direct receipt of the funds from the proceed of the sale until it is transferred to the closing agent for the replacement property. The Qualified Intermediary must be independent of the investor.
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