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These are only a few of the key requirements and procedures that must be followed when performing a 1031 tax-deferred exchange.

Facilitators - 1031 tax-deferred exchanges use an independent party, often called a Qualified Intermediary, to facilitate the exchange. Facilitators are needed because the person deferring taxes cannot receive the proceeds from the sale of the property under the rules for 1031 exchanges. The facilitator receives the funds and holds them until the purchase of a replacement property, when the facilitator delivers the funds directly to escrow or the closing agent.

Exclusions - The property must not be a type specifically excluded from 1031 exchanges. Most real property held for investment purposes can be used in a 1031 exchange.

Purpose - The purpose of both the property sold and purchased must be investment or productive use in a trade or business. The property cannot be the owner's residence or bought with the intention of immediate resale.

Like Kind - The property purchased must be "like kind" to the property sold. This is simple because all real property in the US is like kind.

Value, Equity, Debt - The value, equity, and debt of the property purchased must be equal to or greater than the value, equity, and debt of the property sold. Value is generally the purchase/sale price. Equity is generally the portion of the property held "free and clear". Debt is what is owed on the property, generally a mortgage.

Timeframe - Within 45 days from the date of closing on the property sold, you must identify potential replacement properties. There are limits to the number of properties that can be identified. The replacement property must be purchased within 180 days from the date of closing on the property sold, or the due date of your federal tax return for the year in which the property was sold. (If you sell a property on October 31, 2006 and do not apply for an extension to file your federal tax return, the exchange period will end on April 15, 2007 - only 166 days from the sale.)

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