6 Steps Involved in a TIC 1031 Exchange

A TIC 1031 exchange, or tenant in common 1031 exchange, is a type of property exchange that is designed to eliminate the burden of capital gains taxes for the property owner. With this type of property exchange, the owners have an equal share of ownership in the property. Here are the basic steps involved in completing a TIC 1031 exchange.

1. Qualified Intermediary Agreement

The first part of the process involves the owners of the investment property deciding to sell it. Once they make the decision to sell, they have to enter into an agreement with a qualified intermediary. A qualified intermediary is an individual that will handle the money while they are going through the property exchange. Without the use of a qualified intermediary, this transaction would be taxable. The owners of the property do not have access to the money at any point during the transaction.

2. List the Property

After entering into an agreement with a qualified intermediary, you list the property on the market. In most cases, you should consider listing the property with a qualified real estate agent. Choose someone that is experienced in selling investment properties and can work within the timeframes of the exchange process.

3. Offer Accepted

Then, an offer is accepted. The qualified intermediary has to sign the paperwork associated with it to prove that they were involved from the beginning. They should complete the contract so that it properly reflects the TIC 1031 and discloses to the buyer all timeframes that must be upheld.

4. Escrow

The escrow will be opened for the sale. At the same time a preliminary title report will be produced by the title company. The qualified intermediary is required to send the appropriate documents, regarding the sale of the property, to the escrow company. After everything is processed, the escrow on the property closes.

5. Identification Period

After the money is in the possession of a qualified intermediary, the owners of the property enter into the identification period. This is a time period in which they have to choose a new property to purchase. This period lasts for 45 days from the date of the closing of the previous sale. The individuals do not have to purchase the property within this time window, but they are required to identify potential properties that they will pursue for purchase.

6. Exchange Period

The next step in the process is referred to as the exchange period. This period provides the investor with 180 days from the date of the previous sale. During this part of the process, the investor has to purchase a new investment property. When they identify the property that they want, they make an offer on the new property. If it is accepted, the qualified intermediary will step in and provide the funds for the transaction. 

If the investors do not purchase a property within this window, then the money that is in the possession of a qualified intermediary will become taxable and the exchange will fail. 

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