1031 EXCHANGE PROCESS
The 1031 Exchange is certainly a great transaction tool to defer the payment of your income tax liabilities when you sell investment real estate, but it is much more than that. It is also a great wealth building tool. It allows you to continually defer the payment of your capital gain and depreciation; thus recapturing income tax liabilities over your lifetime.
This means that you continue exchanging properties as a life-long strategy, always deferring the payment of your income tax liabilities and keeping your equity working for you. Using this strategy, the value of your real estate portfolio, and consequently your net worth, will grow exponentially faster over your lifetime as you continually defer the payment of your income tax liabilities.
We offer the expertise needed to help you smoothly execute the 1031 exchange process. With tight timelines and strict rules to follow, you need a team who provides you with the most investment strategy options and who can assure flawless execution. The 1031 Exchange process is a four-step process and one in which we, as your 1031 Exchange Team, will guide you through:
Phase 1: Planning
The Planning Phase consists of several steps. The first step in completing a Section 1031 Exchange is to conduct a complimentary Section 1031 Exchange Benefit Analysis. This is where we gather a clear understanding of your financial and real estate investment objectives, including immediate and long-term needs and review it with you.
As your 1031 Exchange Specialists (Exchangor),we will objectively assess the 1031 process. Proper execution is critical, because you have only one chance to execute it properly. As specialists, we understand this so we will organize a team immediately and proceed on a very proactive basis.
Phase 2: Relinquished Property-Sale
The first few two steps in the Sale Phase are to develop a replacement property plan and conduct a preliminary search for replacement options. Once we are confident that there are suitable replacement opportunities, then your1031 Exchange Team will create a comprehensive strategy to market and sell your property.
Phase 3: Replacement Property-Purchase
A list of potential replacement properties is created during Phase 2. By the time the sale escrow is nearly closed, the Purchase Phase begins with due diligence performed on the top replacement property candidate. At the same time, “safety net” replacement properties are identified. All activities are closely managed to help ensure that none of the Section 1031 Exchange deadlines are violated.
Phase 4: Post Closing
Remember a 1031 exchange is a tax-deferral not a tax-avoidance strategy. If your strategy is to always exchange and never cash out – when you pass away, your heirs inherit your property with a stepped up basis (which means at the fair market value at the time of death). A stepped up basis eliminates the tax liability on the deferred gain.
So it just makes good sense to do an annual comprehensive review of your real estate investments. Markets change, properties age, interest rates move up and down, new opportunities to optimize your real estate investment are identified. You can enjoy maximized benefits of your investment and your heirs can continue enjoying the benefits without paying taxes.