The exchanger, also known as the taxpayer or the investor, is the individual or entity that initiates and completes a 1031 exchange. The exchanger is the one who sells the original property and uses the proceeds to purchase a replacement property in order to defer paying taxes on the sale of the original property.
The exchanger must meet certain qualifications to be eligible for a 1031 exchange. They must be the legal owner of the property being sold and purchased, and the property must be used for investment or business purposes (not for personal use).
It is important to note that the exchanger must work with a qualified intermediary (QI) to facilitate the exchange transaction. The QI acts as a neutral third party and holds the proceeds from selling the original property in an exchange account until the replacement property is identified and purchased.
- The exchanger is to work with a reputable, qualified intermediary with experience and knowledge in facilitating 1031 exchanges. This will ensure that the exchange transaction is completed in a compliant manner and that the exchanger is able to take advantage of the tax-deferral benefits of a 1031 exchange.
- Another tip for the exchanger is to consult with a tax professional or financial advisor to ensure that the replacement property is structured in the most tax-efficient manner and that the exchanger is taking full advantage of the rules and regulations surrounding a 1031 exchange.
- It’s also important for the exchanger to be aware of the exchange period and identification period. They must identify and purchase a replacement property within the exchange period, which starts on the day the original property is sold and ends on the earlier of the following: 180 calendar days after the sale of the original property or the due date (including extensions) for the investor’s tax return for the year in which the original property was sold.
The exchanger is the individual or entity that initiates and completes a 1031 exchange. By working with a reputable, qualified intermediary, consulting with tax and financial professionals, and understanding the rules and regulations surrounding a 1031 exchange, the exchanger can take advantage of the tax-deferral benefits of a 1031 exchange and ensure compliance with IRS rules and regulations.