What to Expect from Above & Below During the 1031 Exchange Process
The process to Open and Execute a standard forward/deferred 1031 exchange requires a series of steps that must be taken in the right order and within strict time limits. Above & Below 1031 LLC, as your Qualified Intermediary, will guide you through the process and help ensure that everything is coordinated properly with all parties involved.
- Introductory Phone Call with Above & Below 1031.
The first step before opening a 1031 Exchange is to speak with one of our Qualified Intermediaries to discuss your situation and goals to confirm that it meets the 1031 Exchange qualification requirements, go over the rules, timelines, and process, and answer any questions that you might have to ensure that we are a good fit.
- Enter Into a 1031 Exchange Agreement with Above & Below 1031.
Once it is determined that a 1031 Exchange will meet your needs, Above & Below 1031 (A&B 1031) will send you an email with a summary of the next steps and a link to our online Intake Form. The form will ask for information about you/the entity opening the exchange and the property that you are selling. It also has a link to upload the purchase agreement for the relinquished property (RQ) that you are selling. Upon receipt of the Intake Form and the Purchase Agreement, A&B 1031 will draw up the required Exchange Agreement and Assignment of Relinquished Property form and send them to you via DocuSign for review and signature. These documents must be signed and returned before the closing of the RQ takes place otherwise a 1031 exchange will not/cannot be completed.
Tip – Notify your Title Company that you will be doing a 1031 Exchange. It is also advisable to discuss your intent with your CPA/Tax Professional, Realtor, Lender for the replacement property, etc. so that everyone is aware that you are doing a 1031 exchange.
- Above & Below 1031 Opens the Escrow Account.
After the exchange agreement is in place, A&B 1031 will open the escrow account for the benefit of the person(s)/entity doing the 1031 exchange. It is segregated from other client accounts and A&B 1031 business accounts in an FDIC insured bank that specializes in holding 1031 exchange funds.
- Above & Below 1031 Assists with the Closing for your Relinquished Property.
A&B 1031 will then contact the Title Company/Escrow Officer that is handling the closing. We will provide them with a request for assistance so that the exchange is documented properly on your closing statement, signature lines are correct, and A&B 1031’s exchange fee is included as a line item. They will also receive the escrow account wire instructions to send your exchange proceeds to, and A&B 1031’s wire instructions for our fee. Lastly, we will give a Notice of Assignment form to the title company for the buyer of the RQ to sign, acknowledging that they have been notified that you are doing a 1031 exchange. On the day of the closing, the title company wires the proceeds to your account, A&B 1031’s fee to us, sends us the signed forms we requested, and ensures that the property is deeded directly from you to the buyer.
- Delivery of Critical Information.
The day after the RQ closes (or next business day), A&B 1031 will send a letter containing all relevant information regarding the 45-day and 180-day deadlines, the rules to identify the RP(s) and the form that can be used to formally identify. We will also send a statement to show that the exchange proceeds have been posted to the escrow account.
- Find Replacement Property(ies) and Submit the 45-Day ID Letter.
While RPs can be found prior to this step, now’s the time to formally identify them and submit the signed form by the 45th day after the (first) RQ closes. Additional information can be found on our 1031 exchange rules and qualifications page.
- Prepare for and Purchase of Replacement Property.
A&B 1031 will need a copy of the purchase agreement for the replacement property once both parties have signed it. We will then send an Assignment of Replacement Property form to you for review and signature. Once signed, A&B 1031 will work with the title/escrow company so that the exchange is documented properly on that closing statement, signature lines are correct, and exchange funds are accurate. We will ask for the title company’s wire instructions and do a call-back to verify the instructions. Lastly, we will give them a Notice of Assignment form for the seller of the RP to sign, acknowledging that they have been notified that you are buying the property via a 1031 exchange. Once authorized by you, on the day of closing, A&B 1031 will wire the exchange proceeds from the escrow account to the title company so they can disburse the funds to all relevant parties. The title company sends us the signed forms we requested and ensures that the property is deeded directly from the seller to you/your entity. All RPs must be purchased by the 180th-day after the (first) RQ closes.
- Close the 1031 Exchange.
Once all RPs have been purchased, A&B 1031 will send an Exchange Closing letter and a final statement showing that the exchange account has gone to $0.00. If any funds remain in the account after the properties have been purchased, they will be returned to you per IRS regulations. The exchange closing letter includes a list of the documents that your tax preparer will need to document your exchange on your tax return using Form 8824.