Direct Deeding, also known as Deed-in-Lieu, is a process in which the replacement property is deeded directly to the buyer without the need for a Qualified Intermediary (QI) to hold the funds during the exchange period.
Key-Takeaway
- Direct Deeding, also known as Deed-in-Lieu, is a process in which the replacement property is deeded directly to the buyer without the need for a Qualified Intermediary.
- Direct Deeding can simplify the 1031 exchange process.
Example
A taxpayer owns a rental property and wants to exchange it for a different rental property. Instead of using a Qualified Intermediary to hold the sale proceeds from the sale of the original property, the taxpayer can choose to directly deed the replacement property to the buyer.
Tips
- Consult a tax professional before using Direct Deeding in a 1031 exchange to ensure compliance with IRS rules.
- Ensure that all steps of the exchange are completed correctly to avoid triggering taxable events.
Recommendations
- Use a reputable and experienced attorney to assist with the Direct Deeding process.
- Document all steps of the exchange to maintain a clear record of the transaction.
- Consider using Direct Deeding in combination with a 1031 exchange to defer the tax on the gain from the sale of the property.
