Forward Exchange Process

There are Eight Steps to completing your Forward Exchange Process with Preferred 1031.

Step 1

Contact Preferred 1031 to begin a Forward Exchange:

   ●  Call:  866-293-1031
   ●  Email:

Confirm that the property being sold qualifies as like-kind property pursuant to the IRS definition. Additionally, confirm that the property is considered investment property or held for business use. Next, provide an executed sales contract complete with amendments and/or extensions. Additionally, provide contact information of the settlement agent handling the closing. Other requested information my include a copy of your driver’s license, a W-9, or entity documents in the event the property is owned in an entity.   

Step 2

Upon receipt of the aforementioned information a Tax Deferred Exchange Agreement and an Assignment of Relinquished Contract will be prepared.
These documents may be executed electronically or they may be emailed so that you can print, sign and return the executed documents to Preferred 1031 via email.
Prior to closing, all parties on the sales contract must be notified in writing via a Notification of Assignment that the buyer intends to facilitate a 1031 exchange. This is a simple process that will be handled by Preferred 1031 and/or the title company. 

Step 3

It is not required that the other parties on the sales contract acknowledge receipt of the Notification of Assignment. However, it is advantageous to request a signature in the unlikely event of an IRS audit, as a definitive way to prove notice was given.  

Step 4

At closing, the settlement agent should be directed by the taxpayer to have the taxpayer’s net proceeds wired to Preferred 1031 pursuant to wire transfer instructions provided to the settlement agent by Preferred 1031. Alternatively, a check can be overnighted to Preferred 1031, but a wire transfer is preferred. The taxpayer should expect to receive a 1099 from the settlement agent, the potential tax effect of sending the 1099 to the IRS will be negated later via the taxpayer’s filing of an IRS Form 8824, confirming a successful exchange. Unless other arrangements are made in advance of the closing, Preferred 1031 will debit the exchange funds upon receipt of them for the amount of the fee owed for QI services. Thus, the taxpayer does not incur a fee to facilitate the 1031 exchange until the property sale actually closes.
Within 45 days from the date of the transfer of the relinquished property or the old asset, the written notice of the identification, or designation, of the target property(ies) should be given to Preferred 1031.

Step 5

Identification is relatively straightforward if the taxpayer identifies three properties or less. If more than three properties are identified and the sum of the value of all such properties is less than 200% (twice) the value of the relinquished property then any amount of the identified properties may be required; however, if the value is more than 200% of the value of the property sold, the taxpayer must be prepared to close on at least 95% in value (which in most cases means all identified properties must be acquired), of the properties identified. In the event the replacement property does not exceed the value of the relinquished property the taxpayer may be subject to “boot” or tax on the difference in value. Preferred 1031 can provide creative solutions to avoid this scenario.
The designation notice may be modified or revoked up to the end of the 45-day period. However, once property is identified and the 45-day designation period has expired, the  funds will remain in the exchange account for the full 180-day exchange period or upon the purchase of replacement property identified on the designation notice. If no replacement property is identified within the 45 day deadline the funds in the exchange account will be returned to the taxpayer on day 46. We will ensure you understand how these rules are applied to your specific transaction.
In the event the 45 day designation deadline or the 180 day exchange deadline occur in a subsequent tax year and exchange funds are returned to the taxpayer the gain is reported in the year the taxpayer received the exchange funds. However, the taxpayer may elect to report the gain in the year the sale occurred.

Step 6

Prior to the closing of the replacement property, an Assignment of Replacement Property Contract will be prepared. Additionally, a Notification of Assignment will be prepared and provided to all other parties on the sales contract. This process is essentially the same described in Steps 2 and 3 above. 

Step 7

Upon selection of the replacement property the taxpayer may submit a written request that earnest money be paid from the exchange account towards the purchase of replacement property. Similarly, the taxpayer will provide a written request that funds be disbursed from the exchange account to the settlement agent in connection with the purchase of the replacement property.

Step 8

The exchange should be reported on Form 8824 on the tax return in the year the relinquished property is sold. A final report detailing the exchange transaction will be provided by Preferred 1031 to assist the taxpayer and/or their accountant with this process.

As a Qualified Intermediary, Preferred 1031, is prohibited from providing tax or legal advice.  
Taxpayer must seek such counsel from their advisors.

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