The following document briefly outlines how a 1031 tax-deferred exchange works--we hope it will be helpful! If you have any questions about your exchange, please don't hesitate to call.

Section 1031 of the tax code requires that a "Qualified Intermediary" (e.g. 1031x.com) hold the money from the sale of your property, and that we "sell" and "buy" the properties for you, therefore:

1. You assign your right to receive money from the sale of your property to us. (This assignment is Exhibit B of the Exchange Agreement.)

2. We sign the settlement statement acknowledging receipt of the funds and receive the money from the closing agent as your Qualified Intermediary.

3. We bank the money at First American State Bank in a demand account. Your money is always available for immediate purchase of replacement property.

4. You locate and identify replacement property(ies) within 45 days after you transfer the relinquished property. This is your obligation. We will not remind you of this deadline, but will be happy to help you calculate this date if you call. Identification must be in writing, signed and dated by you and received by us prior to the expiration of the 45-day time limit. You should use Exhibit C to the Exchange Agreement to make the identification. FAX it to us. During the first 45 days you may change your identification. Upon the expiration of the 45thday you may only complete the exchange by purchasing a property identified during the 45 days. Do not identify more than three potential replacement properties without consulting with a tax advisor. If you close on a replacement property during the 45-day identification period you may only identify two more potential replacement properties.

5. You contract for the purchase of replacement property(ies). You assign your rights to purchase the replacement property to us. (This assignment is Exhibit D to the Exchange Agreement. Complete and fax Exhibit D to us.)

6. You have the title commitment and contract for your replacement property(ies) sent to us.

7. You "close" on the replacement property(ies) within 180 days after you transfer the relinquished property. We will not remind you of this deadline, but we will be happy to help you calculate this date if you call.

8. We sign the settlement statement acknowledging transmittal of money for the purchase.

9. We transmit the money we have directly to the closing agent.

Important to note:

a. REMEMBER, as a simplified "rule of thumb," you must trade equal or up in fair market value, and equal or up in equity, in order to have a fully tax deferred exchange. Keep this "rule of thumb" in mind when selecting your replacement property.

b. The title to both the relinquished and replacement properties must be held in the same name.

c. If the exchange fails because of failure to comply with the above procedure, or for any reason, we refund your proceeds to you, and you are taxed as if the exchange never occurred.

d. Section 1031 authorizes direct deeding of the relinquished property by you to the buyer and direct deeding of the replacement property to you from the seller

e. The IRS does not consider construction or improvement to real property that you already own as "like kind." Neither does the IRS consider payment of a mortgage on real property that you already own as "like kind."

f. Replacement property may NOT be purchased from a related party (as defined by the IRS).

g. See Exchange Agreement for greater detail.

Frequently Asked Questions:

DO YOU NEED A MORTGAGE?

1) If you need cash for an independent business purpose certain tax authority suggests that you can borrow against your relinquished property prior to sale or borrow against your replacement property when you purchase. This can improve you cash position.

2) If you have a mortgage on your relinquished property you will probably need a mortgage on your replacement property in order to fully defer your tax liability.

Call our mortgage expert Tom Zulanas Toll Free at 866-901-9455
Castle Commercial Mortgage

HAVING A HARD TIME FINDING A REPLACEMENT PROPERTY IN TIME?

The 45-day identification rule is strictly applied. New IRS rulings allow you to exchange into a fractional interest in a large commercial project. Even if you "know" what you are going to buy caution indicates that you should identify a fractional interest as a "back-up" option.

Call our Tenant-in-Common expert Milissa Alexander
Toll Free at 866-901-9455
Castle-nnn.com