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A tax-deferred exchange is very similar to a taxable transaction
except that before closing on the property being sold,
a qualified intermediary, is assigned into the sale contract.
The exchange period begins with the transfer of the first
property providing the exchanger 45 days to identify,
and a total of 180 days to close, on "like-kind"
property. The exchange is completed when the intermediary
is assigned the purchase and sale contract, utilizes the
proceeds received to acquire the replacement property,
and instructs the closer to transfer ownership to the
exchanger by direct deeding.
Different types of Exchanges
Simultaneous Exchange: The property sold and the replacement
properties are joined together and must be closed as
one transaction or neither can close.
Delayed Exchange: An exchange in which the property
sold and the replacement property close on different
dates but not more than 180 days apart.
Reverse Exchange: A reverse exchange occurs when you
buy your replacement property before you sell your current
property. The IRS does not characterize this as an exchange.
"Like-Kind" Property
All real property is "like-kind" with all
other real property. "Like-kind" refers to
how the property is held by the investor. The exchanger
must have held the relinquished property for investment
or for "productive use in their trade of business"
and the intent is to do the same with the replacement
property. You can dispose of and acquire any interest
in real property other than a home or second residence.
Time Periods
You must identify the replacement property by midnight
of the 45th day following the close of the first leg.
The exchanger may identify any three potential replacement
properties without regard to their fair market value.
You are not required to wait until your first leg closes
to identify a property.
The replacement property must actually close by midnight
of the 180th day following the close of the first leg.
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