A 1031 on your file. Here is what the closing needs.

1. Before the deed records

Four things need to exist before the relinquished property transfers:

• A signed exchange agreement between the seller and the qualified intermediary (Treas. Reg. §1.1031(k)-1(g)(4)(ii), (iii)(B)).
• An assignment of the seller's rights in the sale contract to the intermediary (§1.1031(k)-1(g)(4)(iv)(B), (v)).
• Written notice of the assignment to every party to the contract, on or before the transfer date. The deed can still go directly from seller to buyer (§1.1031(k)-1(g)(4)(v); (g)(8) Ex. 3).
• Net proceeds routed to the intermediary, not the seller (§1.1031(k)-1(f)(2), (g)(4)(vi)).

In practice: the settlement statement usually shows the intermediary receiving net proceeds, and the intermediary sends written closing instructions.

2. The two clocks

• Day 45 — replacement property identified.
• The end of the exchange period — the earlier of day 180 or the due date, including extensions, of the exchanger's return for the year of the transfer (IRC §1031(a)(3); Treas. Reg. §1.1031(k)-1(b)(2)).

Both run in calendar days from the transfer, which is usually but not always the funding date. A federally declared disaster can postpone them when the IRS issues relief that covers the exchange (IRC §7508A; Rev. Proc. 2018-58 §17). That is a question for the exchanger's CPA or attorney with the IRS notice in hand.

3. Identification, done properly

The identification must be in writing, signed by the exchanger, and hand delivered, mailed, faxed or otherwise sent before midnight on day 45 to a permitted party, with an unambiguous description of each property (Treas. Reg. §1.1031(k)-1(c)(2)–(3)). It satisfies one of two rules: up to three properties of any value, or any number whose combined value does not exceed 200% of what was sold. If both are exceeded, the 95% exception can still save it (§1.1031(k)-1(c)(4)). A revocation follows the same rules (§1.1031(k)-1(c)(6)).

4. Exchange funds at the closing table

The regulation disregards the exchanger's right to transactional items such as commissions, prorated taxes, recording and transfer taxes, title and escrow fees, and prorated rents (§1.1031(k)-1(g)(7)). Loan costs, points and lender reserves are not addressed in the regulation. Whether any line item is taxable boot is for the exchanger's tax advisor: flag it, don't decide it. When a line item is in doubt, ask the intermediary before funding.

5. Who can act as intermediary

Anyone who acted as the exchanger's attorney, accountant, employee, investment banker, broker or real estate agent within the two years ending on the first transfer is a disqualified person, as are certain related parties. Services provided only for the exchange itself, and routine title, escrow, trust or financial services, are excepted (Treas. Reg. §1.1031(k)-1(k)).

6. When the buyer on title is an EAT

In a reverse or improvement exchange, an Exchange Accommodation Titleholder takes title under a written qualified exchange accommodation arrangement entered into within five business days. The parked property must leave the arrangement within 180 days (Rev. Proc. 2000-37 §4.02, as modified by Rev. Proc. 2004-51). The closing file looks different from a forward exchange; call early.

If it lands on your desk late

Call before the proceeds move: 866 550 1031. We work to your closing date and tell you right away if it cannot be done.