Setting up a 1031 exchange account is a crucial step in facilitating a successful like-kind exchange, allowing you to defer capital gains taxes on the sale of investment properties. At Deferred.com, we specialize in providing qualified intermediary services to ensure your exchange is executed smoothly and in compliance with IRS regulations. Here's a detailed guide on how to set up a 1031 exchange account with us:

1. Engage a Qualified Intermediary (QI): The first step in setting up a 1031 exchange is to engage a qualified intermediary, like us at Deferred.com. As your QI, we will facilitate the exchange by holding the proceeds from the sale of your relinquished property and using them to acquire your replacement property. This ensures you do not have constructive receipt of the funds, which is crucial for maintaining the tax-deferred status of the exchange.
2. Draft an Exchange Agreement: Once you have engaged us as your QI, we will draft an exchange agreement. This agreement outlines the terms of the exchange, including the identification and acquisition of replacement property, and ensures compliance with IRS regulations. The agreement will specify that we, as your QI, will hold the proceeds from the sale of your relinquished property and use them to purchase the replacement property on your behalf.
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 relinquished property's value. We will assist you in documenting this identification to ensure compliance with the IRS's 45-day identification rule.
4. Open an Exchange Account: We will open a separate exchange account to hold the proceeds from the sale of your relinquished property. This account is crucial for tracking the funds and ensuring they are used solely for acquiring the replacement property. The funds in this account are not accessible to you during the exchange process, which helps maintain the tax-deferred status.
5. Acquire Replacement Property: Within 180 days of selling your relinquished property, you must close on the purchase of the replacement property. We will use the funds in the exchange account to acquire the replacement property on your behalf, ensuring that the transaction is structured as an exchange rather than a sale and purchase.

Example:

Let's say you own an investment property valued at $500,000, which you plan to sell. You engage us at Deferred.com as your qualified intermediary to facilitate a 1031 exchange. Upon selling your property, the $500,000 proceeds are deposited into a separate exchange account we manage. You identify three potential replacement properties within 45 days, each valued at $500,000 or more.

Within the 180-day period, you decide to purchase one of the identified properties for $500,000. We use the funds from the exchange account to complete the purchase, ensuring that you do not have direct access to the proceeds at any point. By following these steps, you successfully defer capital gains taxes on the sale of your original property.

At Deferred.com, our "No Fee Exchange" service is designed to save you money while providing expert guidance throughout the 1031 exchange process. By partnering with us, you can confidently navigate the complexities of a 1031 exchange and maximize your investment potential.