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5 Things to Know Before Your 1031 Exchange Process Begins

1. You need a QI before you sell:

All exchange transactions, from the sale of the relinquished property to the purchase of the replacement property(ies), must be completed with the assistance of a Qualified Intermediary (“QI”), also known as a 1031 Accommodator or Facilitator. The job of the QI is to help you navigate the complicated 1031 real estate exchange process, helping you properly comply with each of the exchange code’s regulations and requirements. A QI is an independent entity that is not the investor, an agent of the investor, or a related party to the investor and that enters into a written agreement with the investor to complete the exchange transactions on behalf of the investors for the purpose of adhering to 1031 real estate exchange requirements.

2. Know your identification rules:

1031 exchange investors must comply with one of the three identification rules when identifying potential replacement properties. These rules include the Three Property Identification Rule, the 200% of Fair Market Value Identification Rule, and the 95% Identification Exception. Learn more about the identification rules here.

3. Know your 45-day identification period:

There are very specific identification period requirements for a 1031 real estate exchange. Replacement properties under consideration for acquisition in a 1031 exchange should be identified to the QI and must be identified no later than midnight of the 45th calendar day following the close of the relinquished property sale transaction.

4. Know your 180-day closing period:

Once the replacement properties are identified, the seller has a purchase window of up to 180 calendar days from the date of their property sale to complete the exchange. This means they have to purchase a replacement property or properties and have the qualified intermediary transfer the funds by the 180-day mark. This window may be shorter if the due date of the income tax return for the tax year in which the previous property was sold falls within the 180-day window. In which case, the sale is due by the tax return date. If the deadline passes before the sale is complete, the 1031 exchange is considered failed and the funds from the property sale are taxable.

5. Have a backup plan:

One main advantage of Delaware Statutory Trusts is that you can identify a DST as one of your replacement properties by the end of the 45-day identification period for your 1031 exchange. The trust can serve as a backup if the properties cannot be closed on for any reason during the 180-day period. Delaware Statutory Trusts can be an effective backup plan in a 1031 Exchange. Create an account to view our large selection of DST properties today.

This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees and other expenses. This literature must be accompanied by, and read in conjunction with, a prospectus or private placement memorandum to fully understand the implications and risks of the offering of securities to which it relates. As with all investing, investing in private placements are speculative in nature and involve a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results and forward-looking statements and projections are not guaranteed to achieve the results described and your actual returns may vary significantly. Investments in private placements are illiquid in nature and there may be no secondary market or ability to sell the investment should the need for liquidity arise. This material should not be construed as tax advice and you should consult with your tax advisor as individual tax situations will vary. Securities offered through Capulent, LLC, member FINRA, SIPC.