Detailed Information

"LIKE KIND" Property

To qualify as "like-kind" property for a Section 1031 Exchange, the investor's relinquished and replacement properties must be real estate that has been and will be held for productive use in the investor's trade or business or held for investment.

TAX BENEFITS OF EXCHANGING:

Whether an investor's real estate is owned free and clear or encumbered, the benefits for a tax deferred exchange are significant. The tax dollars saved by doing an exchange can be utilized to purchase additional investment property.

EXCHANGE REQUIREMENTS:

Under Section 1031 of the Internal Revenue Code, capital gain tax may be deferred on the sale of real estate held for productive use in a trade or business or for investment when it is exchanged for "like kind" real estate to be held either for productive use in a trade or business or for investment. To obtain the benefits of this "Safe Harbor" protection of the tax code - to prevent actual or constructive receipt of the exchange proceeds, and thereby disqualify the exchange for favorable tax treatment - prudent investors use the services of a Qualified Intermediary such as Asset Exchange of Oklahoma, LLC.   As a Qualified Intermediary, Asset Exchange acts as a principal party to the exchange transactions in both simultaneous and delayed transactions, providing the investor with the necessary reciprocal transfer of properties and the "Safe Harbor" protection against actual and constructive receipt of the exchange funds as required by Section 1031.

THE EXCHANGE PROCESS

  • Exchanger signs a contract to sell his relinquished real estate to the Buyer.
  • Asset Exchange is retained to be the Qualified Intermediary and Exchanger assigns its rights in the sales contract to Asset Exchange.
  • Sale of Relinquished Property is closed. Deed goes directly to Buyer from Exchanger and sale proceeds are delivered directly to Asset Exchange.
  • Within 45 days, Exchanger Identifies replacement real estate and advises Asset Exchange in writing.
  • Exchanger signs contract to purchase the identified replacement property and assigns the contract to Asset Exchange.
  • Within 180 days (or until the Exchanger's tax filing deadline, including extensions, for the year in which the relinquished property is sold) Exchanger must acquire all replacement properties.
  • At closing, the replacement property is deeded directly from seller to Exchanger.   Asset Exchange delivers proceeds directly to seller.

GENERAL INFO

Generally, pursuant to Section 1031, in order to avoid paying any capital gain taxes on the sale of real estate, the investor should attempt to:


1. Purchase replacement real estate with a net sales price equal to or greater than the relinquished property.


2. Reinvest all of the net equity in the replacement property.


3. Obtain debt on the replacement property equal to or greater than the debt on the relinquished property.


LANGUAGE FOR CONTRACT

"Buyer hereby acknowledges it is the intent of the Seller to effect a Section 1031 tax-deferred exchange, which will not delay the closing or cause additional expense to the Buyer. The Seller's rights under this agreement may be assigned to Asset Exchange of Oklahoma, LLC, a Qualified Intermediary, for the purpose of completing such an exchange. Buyer agrees to cooperate with the Seller, and the Qualified Intermediary to complete the exchange."