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A written agreement between the exchanger and the Qualified Intermediary (QI) defining the transfer of the relinquished property, the ensuing purchase of the replacement property, and the restrictions on the exchange proceeds during the exchange period.
What is a 1031 Exchange? An exchange is a real estate transaction in which a taxpayer sells real estate held for investment or for use in a trade or business and uses the funds to acquire replacement property. A 1031 exchange is governed by Code Section 1031 as well as various IRS Regulations and Rulings.
Report a gain from the exchange of property used in a trade or business (and other noncapital assets) on Form 4797, line 5 or line 16. Report a gain from the exchange of capital assets according to the Schedule D instructions for your return. Be sure to use the date of the exchange as the date for reporting the gain.
Although many taxpayers include language in their purchase and sale agreements establishing their intent to perform an exchange, it is not required by the Internal Revenue Code in a Section 1031 exchange. It is important, however, that the purchase and sale agreements for both properties be assignable.
Writing a real estate purchase agreement.Identify the address of the property being purchased, including all required legal descriptions.Identify the names and addresses of both the buyer and the seller.Detail the price of the property and the terms of the purchase.Set the closing date and closing costs.More items...