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How to Initiate an Exchange

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How to Initiate an Exchange

How to Initiate an Exchange – Retaining A Qualified Intermediary Before The Sale

A very important aspect of the 1031 Exchange is finding and retaining an experienced Qualified Intermediary, such as Capital 1031 Exchange Company, to assist you throughout the entire exchange transaction. A Qualified Intermediary must be retained prior to the sale of the relinquished property and will assist with the structure of the exchange. Once the QI is retained they must be added as assignee into the purchase and sales agreement before closing the initial transaction (usually the sale of the taxpayer’s property, often referred to as the relinquished property).


At the time the Agreement of Sale is being drafted, the taxpayer should instruct that an “exchange cooperation clause” should be included as an addendum to the agreement.


How to Initiate an Exchange - Retaining A Qualified Intermediary Before The SaleThe exchange cooperation clause contains language acknowledging that the Buyer is aware of the taxpayer’s intent to do a §1031 exchange, and that it will be done at no additional cost or liability to the


Buyer. The taxpayer must provide a copy of the purchase and sales agreement along with some additional information to the QI and then notify the QI in advance as to when the transaction is scheduled for closing. As soon as the QI receives a copy of the purchase and sales agreement and is informed of the closing date, they will draft all the necessary documents for the closing on the relinquished property.


Capital 1031 Exchange Company will also set up a separate escrow sub-account to hold the exchange proceeds, thus ensuring that the taxpayer’s funds are subrogated and therefore protected.


Our clients’ funds are never commingled. Not every QI protects the funds in the same manner. Once the relinquished property has been sold, the proceeds of sale are sent to the QI to hold on behalf of the taxpayer.


Prior to the scheduled closing date, all of the exchange documents will be sent to the settlement agent for the closing, so that the documents can be executed by the taxpayer and the Buyer of the relinquished property. The funds will be wired to Capital 1031 and held until the replacement property closing(s) occurs. One of the things that sets Capital 1031 apart is our level of expertise. An exchange attorney is assigned to manage each file. The attorneys at Capital 1031 are experts in this field and through years of experience have accumulated extensive knowledge of 1031 regulations.


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