1031 like-kind exchange services
1031 exchanges are a valuable investment tax vehicle, allowing real estate sellers to defer paying taxes on their sale proceeds. Exchangors must follow strict guidelines regarding their proceeds and replacement properties. American Title Agency of Lenawee is able to provide 1031 exchange and escrow services through our in-house 1031 qualified intermediary, Birmingham Exchange Company.
We have the knowledge and experience to guide you through the 1031 exchange process, no matter which title agency you partner with, even on short notice. When you choose Birmingham Exchange Company as your 1031 qualified intermediary, you can be confident that your exchange will be handled competently, and that your funds will be safe, secure, and available whenever you need them. If you have thought about how a 1031 exchange might help your bottom line as an investor, please give us a call today to discuss how we can help you.
What is a 1031 Exchange?
A 1031 Exchange references the IRS 26 U.S. Code ⸹ 1031 which provides that capital gains taxes can be deferred on the sale of the property if it is exchanged solely for real property of like kind held for use as a business or investment.
The IRS has strict guidelines that must be followed in order to successfully accomplish a 1031 exchange. A few of the most basic guidelines are:
- The relinquished property (or the property that is being sold) and the replacement property (the property that is being purchased) may not be primary residences or vacation homes. The properties must either be used for commercial purposes or investment purposes.
- The exchanger (the taxpayer selling the relinquished property), whether it is an entity or individual, must be the same taxpayer that purchases the replacement property.
- The exchanger has 45 days from the day of closing on the relinquished property to identify any replacement properties.
- The exchanger has 180 days from the day of closing on the relinquished property to close on any replacement properties.
- The exchanger may not receive or take control of any of the proceeds from the sale of the relinquished property. Any proceeds received and deposited by the seller cannot qualify for the 1031 exchange, and are immediately taxable as capital gains.
Where do your funds go?
At American Title Agency of Lenawee, we are constantly handling our clients’ funds, and we work with the best vendors in the industry to ensure that handling is transparent, accurate, and accountable. Per 1031 guidelines, all funds that are anticipated to be used in a 1031 exchange must be held by a Qualified Intermediary. Our in-house Qualified Intermediary, Birmingham Exchange Company, is solely managed by one of our attorney owners. If your title transaction goes through American Title Agency of Lenawee, it is a simple matter of an internal book transfer to move your funds to Birmingham Exchange Company. If your title transaction is with another title agency, we provide wiring instructions that will direct your funds straight to Birmingham Exchange Company.
By arrangement with our banking partners, we are also able to provide our clients with the most advanced, responsive and individualized 1031 exchange banking services. Each exchanger will have its own bank account number and monthly bank statement. Your account is created the day we receive the funds, and liquidated the day you close on your replacement property. Our 1031 clients particularly enjoy this feature because unlike most Qualified Intermediaries, our clients’ 1031 funds are never intermingled with any other exchanger’s funds.
Is a 1031 Exchange complicated?
The short answer is: it doesn’t have to be. When you work with Birmingham Exchange Company, we are experts in the industry who understand how to customize solutions for our clients, and will provide you with everything you need to get the deal done.
Once we receive a 1031 exchange order, we communicate immediately with the title agency handling the transaction. The exchanger does not have to be the middleman, trying to coordinate between all the parties – we will work directly with your title agency so all you have to do is show up to the closing.
Birmingham Exchange Company will draft all the necessary documents your CPA will require from you in order to file for a 1031 exchange. We coordinate with the title agency, review and approve the settlement statements, and handle the receipt and disbursement of necessary funds throughout the entire 180 day process.
Because we hold ourselves to the highest standard of service and are dedicated to our clients and their needs, we are able to do 1031 exchanges with very little notice. Most clients unfortunately are not made aware of the benefits of a 1031 exchange until they are about to close, and we understand this. We do not want to prevent potential clients from a significant tax break and so we do everything in our power to accommodate last minute 1031 exchange requests.
What happens if you miss the 1031 deadlines?
At any point during the 1031 exchange process, an exchanger can elect to remove any portion of the funds, or cancel the exchange completely and receive all the funds. It is your money, and you are entitled to receive it when and however you choose. Birmingham Exchange Company charges a flat fee at the time of the relinquished property closing, and does not charge any fees after. So the exchanger can cancel the deal without worrying about outstanding fees. Once the exchanger receives the funds, the process with the IRS becomes exactly the same as if the exchanger had received the proceeds at the closing table.
Because there is no penalty or additional fee charged if you do terminate your 1031 exchange, it is in your best interest to start one just in case you are able to find a replacement property within the required timeframe. It is always better to have the option open to do a 1031 exchange and not use it, then to find a replacement property after you have received your proceeds from the relinquished property and are now disqualified from doing a 1031 exchange.