Nationwide 1031 Exchange Accommodators
Complete your 1031 exchange with the expertise of our licensed CPA professionals. Universal Pacific 1031 Exchange offers dedicated personal service, timely email and text reminders, & transparent processing.
Our 1031 Exchange Intermediary Services Include:
Delayed Exchange (most common)
Existing property is sold and a replacement property is purchased within 180 days.
Simultaneously transfer ownership of both the relinquished property and the replacement property.
The replacement property is identified and purchased before the relinquished property is sold.
This type of exchange occurs when an existing owner elects to either make improvements to an identified replacement property or construct a new replacement property.
Steps for completing an exchange with
Universal Pacific 1031 Exchange.
The exchanger signs a contract to sell a relinquished property to the buyer.
Universal Pacific 1031 Exchange and the exchanger enter into an exchange agreement to retain Universal Pacific 1031 Exchange as the Qualified Intermediary and the exchanger then assigns the exchanger’s rights in the sale contract to Universal Pacific 1031 Exchange.
At the closing of the relinquished property the exchange funds are wired to Universal Pacific 1031 Exchange who then instructs the settlement officer to transfer the deed directly from the exchanger to the buyer.
The exchanger has a maximum of 180 days in the exchange period (or until the tax filing deadline, including extensions, for the year of the sale of the relinquished property), to acquire all replacement property.
The exchanger must identify possible replacement properties in writing to Universal Pacific 1031 Exchange within the 45-day identification period.
The exchanger signs a contract to purchase the replacement property with the seller and the exchanger assigns the exchanger’s rights in the purchase contract to Universal Pacific 1031 Exchange.
At the closing of the replacement property, Universal Pacific 1031 Exchange wires the exchange funds to complete the exchange and Universal Pacific 1031 Exchange instructs the settlement officer to transfer the deed directly from the seller to the exchanger.
Your 1031 exchange is complete!
Safeguarding exchange funds is our priority. We follow a simple yet very stringent process of keeping exchange funds secure.
Upon the sale of the relinquished property, all exchange funds are wired from the sale escrow and held in a Universal Pacific 1031 Exchange segregated bank account. Upon purchase of the replacement property(ies), all exchange funds are wired back to the purchase escrow from the Universal Pacific 1031 Exchange segregated bank account upon written authorization from exchanger to release those funds.
Universal Pacific 1031 Exchange carries $2 million of Errors and Omissions insurance.
1031 Contract Documentation basics
The owner of the property and the Qualified Intermediary enter into an exchange agreement on or before the date of the sale (delayed exchange) or purchase (reverse exchange) providing:
The sale of exchange property and the purchase of the exchange property are interdependent, that is, they both must happen for the exchange to be complete.
The exchange agreement must contemplate a reciprocal transfer rather than a transfer of property for money consideration only.
Access to the funds is restricted so the owner is not considered to be in receipt of the funds.
The sale agreement for the asset to be sold must be assigned to the Qualified Intermediary prior to the date of the sale.
The purchaser must acknowledge the assignment on or before the date of the sale in order for the asset to be sold.
The purchase agreement for the replacement property must be assigned to the Qualified Intermediary.
The seller of the replacement property must acknowledge the assignment on or before the date of the purchase.
Learn More About 1031 Exchanges
Check out our blog for you’d want to learn about the process.
How 1031 Exchange Tenant-in-Common Works
How to Report 1031 Exchange on Tax Return
1031 Exchange Extension: Everything You Need To Know
1031 Exchange FAQs
You must identify your replacement property (ies) within 45 calendar days and close the purchase of the replacement property (ies) within 180 calendar days after the sale of the relinquished property or the taxpayer’s tax filing deadline, including extensions, whichever is sooner.
The paperwork required consists of an exchange agreement plus the necessary assignments and acceptances prepared by an independent exchange accommodator. We will take care of all the required paperwork and keep you informed of all the due dates.
It generally makes sense to sell your investment property and exchange into a like kind investment of equal or higher value if one or more of the following factors is applicable to your existing investment: depreciation allowances have ended; no mortgage on property; existing cash flow & management issues; opportunity to trade up into a less management intensive investment property; estate planning.
If you do not follow the procedures required by Section 1031 of the Internal Revenue Code, the exchange may be disallowed by the IRS resulting in a capital gains tax liability to the taxpayer.
1031 exchanges can be complicated so they have to be done in a very specific manner in order to comply with the provisions of the Internal Revenue Code. Our promise is that we will prepare, monitor and guide your exchange transaction according to the highest standards of business care in order to achieve the most favorable outcome.
No, all 1031 exchanges are not the same. Each exchange has its’ own set of requirements. We have the expertise, knowledge, experience and resources to help facilitate your Section 1031 tax deferred exchange. We maintain a competitive pricing model for our exchanges.
No, the IRS will not allow us to act as your tax advisor and/or attorney when acting as your qualified intermediary. We will however, work very closely with your tax advisor and/or attorney to ensure a seamless transaction.
Boot received is the money or the fair market value of “other property” received by the taxpayer in an exchange. Money includes all cash and cash equivalents plus liabilities of the taxpayer assumed by the other party, or liabilities to which the property exchanged by the taxpayer is subject to. Any boot received is taxable (to the extent of gain realized on the exchange). Therefore, A Taxpayer Must Not Receive “Boot” from an exchange in order for a Section 1031 exchange to be completely tax-free.
The Rules of “Boot” in a Section 1031 Exchange
A Taxpayer Must Not Receive “Boot” from an exchange in order for a Section 1031 exchange to be completely tax-free. Any boot received is taxable (to the extent of gain realized on the exchange). This is okay when a seller desires some cash and is willing to pay some taxes. Otherwise, boot should be avoided in order for a 1031 Exchange to be tax free.
The term “boot” is not used in the Internal Revenue Code or the Regulations, but is commonly used in discussing the tax consequences of a Section 1031 tax-deferred exchange. Boot received is the money or the fair market value of “other property” received by the taxpayer in an exchange. Money includes all cash equivalents plus liabilities of the taxpayer assumed by the other party, or liabilities to which the property exchanged by the taxpayer is subject to. “Other property” is property that is non-like-kind, such as personal property received in an exchange of real property, property used for personal purposes, or “non-qualified property.” “Other property” also includes such things as a promissory note received from a buyer (Seller Financing).
Boot can be in advertent and result from a variety of factors. It is important for a taxpayer to understand what can result in boot if taxable income is to be avoided. The most common sources of boot include the following:
Sale proceeds being used to service costs at closing which are not closing expenses. If proceeds of sale are used to service non-transaction costs at closing, the result is the same as if the taxpayer received cash from the exchange, and then used the cash to pay these costs. Taxpayers are encouraged to bring cash to the closing of the sale of their relinquished property to pay for the following non-transaction costs:
Tenant damage deposits transferred to the buyer.
Property tax prorations? Maybe, see explanation below.
Any other charges unrelated to the closing.
Cash boot received during the exchange. This will usually be in the form of “net cash received” at the closing of either the relinquished property or the replacement property.
Debt reduction boot which occurs when a taxpayer’s debt on replacement property is less than the debt which was on the relinquished property. Debt reduction boot can occur when a taxpayer is “trading down” in the exchange.
Property tax prorations on the relinquished property settlement statement can be considered as service of debt based on PLR 8328011. Under this rationale exchange cash used to service tax prorations should not result in taxable boot. However, taxpayers may want to bring cash to the relinquished property closing anyway in order to resolve this issue.
Excess borrowing to acquire replacement property. Borrowing more money than is necessary to close on replacement property will cause cash being held by an Intermediary to be excessive for the closing. Excess cash held by an Intermediary is distributed to the taxpayer, resulting in cash boot to the taxpayer. Taxpayers must use all cash being held by an Intermediary for replacement property. Additional financing must be no more than what is necessary, in addition to the cash, to close on the property.
Loan acquisition costs with respect to the replacement property which are serviced from exchange funds being brought to the closing. Loan acquisition costs include origination fees and other fees related to acquiring the loan. Taxpayers usually take the position that loan acquisition costs are being serviced from the proceeds of the loan. However, the IRS may take a position that these costs are being serviced from Exchange Funds. This position is usually the position of the financing institution also. There is no guidance in the form of Treasury Regulations on this issue at the present time which is helpful.
Non-like-kind property which is received from the exchange, in addition to like-kind property (real estate). Non-like-kind property could include the following:
Seller financing, promissory note.
Sprinkler equipment acquired with farm land.
Ditch stock in a mutual irrigation ditch company acquired with farm land (possible issue).
Big T Water acquired with farm land (possible issue).
Acquisition of ditch stock or Big T water is a possible issue with the IRS. Most taxpayers report their exchanges of farm land by taking the position that water on the farm land is indistinguishable from, and the same thing as real estate. The IRS has been known to have a different view.
Boot Offset Rules – Only the net boot received by a taxpayer is taxed. In determining the amount of net boot received by the taxpayer, certain offsets are allowed and others are not, as follows:
Cash boot paid offsets cash boot received (but only at the same closing table).
Cash boot paid at the replacement property closing table does not offset cash boot received at the relinquished property closing table (Reg. §1.1031(k)-1(j)(3) Example 2). This rule probably also applies to inadvertent boot received at the relinquished property closing table because of prorations, etc. (see above).
Debt incurred on the replacement property offsets debt-reduction boot received on the relinquished property.
Cash boot paid offsets debt – reduction boot received.
Debt boot paid never offsets cash boot received (net cash boot received is always taxable).
Exchange expenses (transaction and closing costs) paid (relinquished property and replacement property closings) offset net cash boot received.
Rules of Thumb:
Always trade “across” or up. Never trade down (the “even or up rule”). Trading down always results in boot received, either cash, debt reduction or both. The boot received can be mitigated by exchange expenses paid.
Bring cash to the closing of the relinquished property to cover charges, which are not transaction costs (see above).
Do not receive property which is not like-kind.
Do not over-finance replacement property. Financing should be limited to the amount of money necessary to close on the replacement property in addition to exchange funds which will be brought to the replacement property closing.