1031 Exchanges are a way of protecting your hard earned money. Consulting with your financial advisor, tax attorney and/or your CPA is always recommended. The following is intended to be used as an introduction to exchanges.
In this type of exchange the sale, relinquished property and the purchase of the replacement property occur on the same day. This type of exchange normally needs the service or a qualified intermediary.
The exchangor has a maximum of 180 Days from the date of closing on the relinquished property or the due day of the tax return for the year the property was sold, (whichever occurs first unless the taxpayer applies for a tax filing extension) to aquifer the replacement property.
This type of exchange is sometimes called a construction exchange. One way of using this type of exchange is when the replacement property is of lesser value than the relinquished property at the time it is to be purchased. In that case the Intermediary can acquire the replacement property on behalf of the exchangor and have improvements made to it during the exchange period. These additions to the value of the replacement property can either be in the form of new construction or improvements to an existing building. After the improvements are completed the replacement property is transferred in the exchangor prior to the completion of the exchange period.
In this type of exchange the investor first locates a replacement property and provides the funds for the Intermediary to purchase the replacement property and go on title before selling the relinquished property.