| Typically, the 1031 Exchange involves forms
like brokers’ price opinion, exemption and nonresident
waivers, affirmation of residency, declaration of trust, IRS
8824 like kind exchanges, lien waivers, mortgage interest
deductions, multifamily mortgage applications, notice of
trustees sale, personal financial statements, power of
attorney, promissory note, quit claims, schedule of income
property, signature affidavit AKA statement or tax
information release forms. IRS Form 8824 has three
purposes. It is not very complicated to fill if the three
main purposes are understood correctly. The first one is to
help the taxpayer report the dates of sale and replacement
property closings, together with identification dates. This
is to verify 45/180 date requirements. This information has
to be in Part One.
Second is for the taxpayer to highlight their sale and
purchase numbers (sale price, selling expenses, adjusted
basis, depreciation taken, cost of replacement property) in
order to make clear whether there was a full or partial
exchange. This information should go in Part Three.
The third purpose is to show the new tax basis of the
replacement property. The exchange being a deferral of
taxes, the gain incurred by the taxpayer in the old property
has to show up in the new property through an equal amount
of lesser basis. This information must be there in Part
Four.
The information in IRS Form 8824 makes the job of the IRS
easy, to review a taxpayer's prior 8824 Forms to ascertain
the appropriate amount of taxable gain and see whether taxes
are paid as and when the taxpayer decides to sell and not
exchange.
But the exchanger or investor need not be baffled by the
forms. The companies hired by the investor would provide the
guidance and assist them in filling them out. The follow-up
is also their responsibility.
Other forms include General Forms and the Official
Identification Form to identify Replacement Properties to be
returned not later than 45 days after the close of the
Relinquished Property. W-9 Form is to request a Taxpayer ID
for the investor. Form 593-C is meant for California
Residents doing any sort of exchanges.
Forms related to funding issues include Request for
Verification of Funds. This is to obtain a statement of the
balance in the account, for the client himself or third
parties, lenders, etc. The Miscellaneous Disbursement
Request form is for releasing disbursements for appraisals,
inspection fees, loan fees, etc.
Request for Return of Exchange Funds is for releasing the
remaining exchange funds after the exchange is completed,
and not for requesting closing money. Earnest Money Deposit
Request is for the closing agent, and not for requesting
closing money.
There are two major forms of
tax-deferred
exchanges--simultaneous exchange and delayed exchange.
Numerous variations of these two fall into one category or
the other.
The most basic type of exchange is the simultaneous
exchange, known as In Lieu Exchange. To illustrate, in
simultaneous exchange, the seller wants to sell the property
A, agreeing to accept Property B in lieu of cash payment. If
the Buyer already owns Property B, then the two parties
simultaneously transfer their respective properties adhering
to the value rules.
In the case of the buyer not owning property B, the buyer
must purchase Property B and transfer it to the seller
simultaneously with transfer of Property A to the buyer. To
preserve the tax-deferred status of the transaction for the
seller, he must not receive any cash or debt relief.
The other is delayed exchange known as a Starker
exchange. This delayed exchange is done using a Qualified
Intermediary (QI). In this type, the seller closes the sale
of his property and escrows the proceeds of the sale with a
QI. Here the seller is handicapped from taking possession of
the proceeds in order to enjoy the tax-deferral status of
the transaction.
After closing the sale of his property, the seller gets
45 days to identify the property or properties to be
exchanged and should submit that in writing to the QI. The
identified properties have to be purchased within 180 days
of the sale of the relinquished property.
1031 Exchange provides detailed information about 1031
exchange, 1031 exchange companies, 1031 exchange experts,
1031 exchange forms and more. 1031 Exchange is the sister
site of
Greater Orlando Real Estate.
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