Section 1031 of the Internal Revenue Code provides that no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment.
Typically in a sale transaction, the property owner will be taxed on any gain from the sale, but if that property owner who is selling chooses to do a 1031 Tax Deferred Exchange prior to the transaction, the tax on any gain will be deferred until a future date.
If the property owner enters in to a 1031 Tax Deferred Exchange, two requirements must be met in order to defer any capital gain.

1. Exchanger (property owner) must acquire “like kind” replacement property within the time limits set fourth in the exchange rules.

2. Exchanger (property owner) cannot receive cash or other benefits from the sale.

That’s where Albert Lea Abstract & Title Company comes into play as a Qualified Intermediary (QI).

The Exchanger and Albert Lea Abstract & Title Company enter into an exchange agreement where:

  • The Qualified Intermediary – Albert Lea Abstract & Title Company acquires the relinquished property(s) that is being sold from the exchanger and then Albert Lea Abstract & Title Company transfers it to the buyer by a direct deed from exchanger.
  • The cash or other proceeds from the relinquished (sold) property are assigned to the Qualified Intermediary – Albert Lea Abstract & Title Company and are held as parked by the intermediary in a interest bearing escrow account at a bank until the replacement property closing. The relinquished property proceeds are then used by the qualified intermediary for the purchase of replacement property(s).

Exchanges must be completed within strict time limits – the exchanger has 45 days from the date of the closing on the relinquished property to “identify” potential replacement properties. The exchanger must provide to the qualified intermediary a written notification of the address or legal description of the potential replacement property(s).

The replacement property(s) closing must be completed 180 days from the closing date of the relinquished property.

The exchanger should keep in mind three things:

1. Purchase prospect(s) for replacement at the same or greater value as the relinquished property.

2. Reinvest all the equity from the relinquished property into the replacement property(s).

3. If there is debt involved – the exchanger should obtain the same or greater debt on the replacement property as is on the relinquished property.

The use of a qualified 1031 exchange intermediary as Albert Lea Abstract & Title Company is essential to successfully completing the exchange.

Let Albert Lea Abstract & Title Company provide the services you need by acting as your qualified 1031 exchange intermediary and making your tax deferred exchange a smooth and worry free transaction.