To put a property into a 1031 exchange, you need to follow a series of steps to ensure compliance with IRS regulations and to successfully defer capital gains taxes. Here’s a detailed guide on how to do it, along with an example to illustrate the process:

1. Determine Eligibility: First, ensure that the property you want to exchange qualifies for a 1031 exchange. The property must be held for productive use in a trade or business or for investment purposes. Personal residences or properties held primarily for sale do not qualify.
2. Engage a Qualified Intermediary (QI): You must use a QI to facilitate the exchange. At Deferred.com, we offer qualified intermediary services, and our “No Fee Exchange” can save you money. The QI will handle the sale of your relinquished property and the purchase of your replacement property, ensuring that you do not have constructive receipt of the funds, which is crucial for maintaining the tax‐deferred status of the exchange.
3. Identify Replacement Property: After selling your relinquished property, you have 45 days to identify potential replacement properties. You can identify up to three properties regardless of their value, or more than three if their combined value does not exceed 200% of the value of the relinquished property.
4. Complete the Exchange: You must acquire the replacement property within 180 days of selling the relinquished property or by the due date of your tax return (including extensions) for the year in which the relinquished property was sold, whichever comes first.
5. Document the Exchange: Ensure all documentation is in order, including the exchange agreement with the QI, identification of replacement properties, and closing statements. This documentation is crucial for IRS compliance.

Example

Let’s say you own an investment property valued at $500,000, which you want to exchange for another investment property. You engage Deferred.com as your QI to facilitate the exchange:

• Step 1: You sell your relinquished property for $500,000. The proceeds are held by Deferred.com, ensuring you do not have constructive receipt of the funds.
• Step 2: Within 45 days, you identify three potential replacement properties: Property A ($450,000), Property B ($500,000), and Property C ($550,000).
• Step 3: You decide to purchase Property B for $500,000. Deferred.com uses the proceeds from the sale of your relinquished property to purchase Property B on your behalf.
• Step 4: The transaction is completed within 180 days, and you successfully defer capital gains taxes on the sale of your original property.

By following these steps and using Deferred.com as your QI, you can effectively execute a 1031 exchange, deferring capital gains taxes and potentially increasing your investment portfolio’s value. Always consult with a tax professional to ensure compliance with all IRS regulations and to tailor the exchange to your specific financial situation.