Questions & Answers
What exactly is a 1031 Tax Deferred Exchange?
It is done by relinquishment (sale) of one investment property, with the acquisition (purchase) of another, by a Qualified Intermediary.
Who is a Qualified Intermediary?
When is the best time to retain an Intermediary?
Couldn't I use my CPA or my attorney for this procedure?
Are my funds secure?
When First American Exchange receives the exchange funds from the sale of your relinquished property, we invest them in our name to your account. Interest will accrue until the funds are withdrawn and will be reported under your social security or tax identification number, which we provide to the financial institution.
All interest earned on this account must be reported on your income tax return as income in the year earned, regardless of whether the interest is spent on the replacement property or received by you.
If the amount of interest earned exceeds $10 for a calendar year, the financial institution will furnish a Form 1099 at the end of that year, showing how much interest has been reported to the IRS as earned by you.
Exchanges must be properties "of a like-kind".....What does this mean?
Assets other than real estate can be exchanged including businesses, planes, boats, trucks and equipment. Exchanger can sell one property and acquire three or vice versa. Both properties must be held as a business use or investment property for a minimum of one to two years.
On the other hand, examples of non-like-kind include primary residences, second or vacation homes, stocks, bonds, notes, or interest in a partnership.
Is there a time limitation in which to complete an exchange?
What are the consequences of not completing the exchange in time?
All funds will be returned to the investor minus First American Exchange nominal exchange fees. The IRS will view the attempted exchange as a sale. As a result, the taxpayer will be responsible for paying all capital gains on the transaction.
Can I close on my replacement property before I find a buyer for my relinquished property?
Can I make improvements on my replacement property?
If you are planning to incorporate improvements to the replacement property into your exchange, please contact First American Exchange as early as possible. An exchange with improvements must be structured a little differently than a standard deferred exchange. Please contact First American Exchange for more information.
Can I take some cash out of an exchange?
Cash, notes, personal property, reduction in mortgage or debt relief are all examples of boot and are subject to tax. Most transactions can be restructured to help reduce or eliminate boot. To avoid boot, an exchanger must trade across or up in equity and mortgage.
Why should I choose First American Exchange (formerly SEAS) as my intermediary?
This helps us to give input to our clients so they structure their transaction, with their legal advisers, to meet the code requirements and their investment goals. We help them to avoid the pitfalls many people fall prey to because of lack of information.
We have fully qualified people to help. We love to answer your questions.
DISCLAIMER: This information is provided to give a general overview of Internal Revenue Code Section 1031. However, as a result of changing tax laws and IRS interpretations, First American Exchange cannot and does not make any guarantees as to its application. First American Exchange is not rendering tax or legal advice. Where tax or legal advice is deemed appropriate, the services of a competent professional knowledged in Section 1031 should be sought.
32650 State Route 20
Oak Harbor, WA 98277
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