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Federation of Exchange Accommodators (FEA)





The IRS regulations state "No gain or loss shall be recognized on the exchange of property held for productive use in a trade or a business or for investment if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or a business or for investment." In very simple terms, an exchange is an investment technique where investment property is exchanged for other investment property. By following specific guidelines, the IRS will not consider the exchange as a sale and repurchase, but will treat the transaction as a nontaxable event.
A qualified intermediary (JELD-WEN 1031) is the third party that facilitates the exchange transaction and is required by the IRS to qualify a 1031 tax-deferred exchange. The IRS does not allow your accountant, attorney, certain relatives, real estate broker, escrow company or agent to act as the qualified intermediary. JELD-WEN 1031 simplifies the exchange process by accepting a transfer of the relinquished property, conveying it to a buyer, receiving the exchange proceeds, buying the replacement property and transferring title to the exchanger. This is a vital role requiring expertise, skill, personal service and extreme care to safeguard the tax-deferred character of the transaction.
A 1031 exchange enables the property owner (exchanger) to defer potential capital gains taxes associated with the sale of investment property. By deferring the taxes the exchanger has more money available to invest and thus can acquire a more expensive property than otherwise would be affordable.
Many investors mistakenly believe they must acquire property exactly like their relinquished property. However "like-kind" doesn't mean "exactly the same," especially when real property is exchanged for other real property. As an example, farmland may be exchanged for a commercial office building or a single-family rental unit may be exchanged for a condominium.


A few examples of property not considered "like-kind" and excluded from non-recognition of capital gains under Section 1031 are: primary residence, stocks, bonds, notes, other securities, property held for resale, partnership interest, and foreign property.


Most real property is considered "like-kind" to other real property. However, "like-kind" limitations on personal property are more restrictive. Personal property must be classified the same under certain government account classifications.

Generally, for the exchange to be fully tax deferred, the replacement property must be equal to or greater in value than the relinquished property, all cash proceeds from the sale of relinquished property must be used to purchase the replacement property, and the debt on the replacement property must also be equal to or greater than the debt on the relinquished property, unless cash from the exchanger is added to offset debt. Value not reinvested in replacement property is "boot" to the exchange and is taxed.
There are two important deadlines in 1031 tax-deferred exchanges and they both begin on the same day; the day the ownership of the relinquished property is transferred to the buyer.


From the closing date, the exchanger has 45 days to identify, in writing, possible replacement properties. Within 180 days of the closing date or the due date of the exchanger's tax return with any extensions included, whichever occurs first, the exchanger must acquire at least one of the properties listed on the 45-day identification form. Extensions for the 45-/180-day periods are not allowed and no allowance is made for weekends or holidays.


From the closing date, the Exchanger has 45 days to identify, in writing, possible replacement properties. Within 180 days of the closing date or the due date of the exchanger's tax return with any extensions included, whichever occurs first the Exchanger must acquire at least one of the properties listed on the 45 day identification form. Extensions for the 45/180-day periods are not allowed and no allowance is made for weekends or holidays

The 45-day identification must be in writing, signed by the exchanger and the identified properties must be unambiguously described (i.e. legal description, street address or distinguishable name) and delivered to JELD-WEN 1031 before midnight of the 45th day. Although an Exchanger may identify more than one replacement property, the maximum number of properties that can be identified is limited to:

  • Three Property Rule
    Three properties without regard to fair market value


  • 200% Rule
    Any number of properties so long as their aggregate fair market value does not exceed 200% of the aggregate fair market value of all relinquished properties.


  • 95% Rule
    Any number of properties without regard to the combined fair market value, as long as the properties acquired amount to at least 95% of the fair market value of all identified properties.

JELD-WEN 1031 will provide the exchanger with forms to assist with the identification process.

If relinquished property is transferred and the exchanger does not want to replace it with another, the sale will create a taxable event and will be subject to federal and state capital gains taxes. In addition, if an exchanger decides to cancel an exchange after JELD-WEN 1031 has received the exchange proceeds, certain restrictions apply to all qualified intermediaries that limit the access to those proceeds until certain time periods have lapsed.
"Boot" can be cash received or other non-cash consideration, such as promissory notes, debt relief or any property that is not "like-kind" as to the property being exchanged. If boot is received in an exchange, it is likely that all or some portion of the boot received will be taxable.
Yes. However, any cash received is considered boot, and is subject to capital gains tax. The exchanger may take cash out of the closing of the relinquished property or upon completion of the exchange. There are limited circumstances provided by the U.S. Treasury that allow you early access to the exchange funds before the end of the exchange period but only in one of the following instances:


  1. At the end of the identification period, you have not selected and identified any replacement property.


  2. You have received all of the replacement property to which you are entitled under the exchange agreement.


  3. After the end of the identification period, a material and substantial contingency occurs that relates to the deferred exchange, is provided in writing in advance of the exchange agreement, and such occurrence is beyond your control or the control of any disqualified person, as defined in Treasury Regulations Section 1.1031(k), other than the person obligated to transfer the Replacement Property to you (i.e., the replacement property you identified is destroyed by fire)


  4. After the 180-day exchange period has expired.

An exchanger does not have access to exchange funds prior to the 45th day, or before the 181st day if replacement property was identified and has not been purchased.

Yes! Exchangers considering a sale of investment property should consult with their tax advisor to determine whether or not to take advantage of an IRC Section 1031 exchange. Ultimately the Exchanger must decide whether to participate in an exchange or write a check to the IRS for capital gains tax.


Taxpayer Access to Exchange Funds

When you elect to participate in a tax-deferred exchange, you are agreeing to certain restrictions as to the use and release of your exchange proceeds under Section 1.1031(k)-1(g)(6) of the Internal Revenue Code. These rules provide that a taxpayer cannot receive, pledge, borrow or otherwise obtain the benefits of money or other property before the end of the exchange period. A common request that qualified intermediaries receive from taxpayers is to release proceeds the qualified intermediary is holding prior to the end of the 180-day exchange period. In some cases, a taxpayer has identified three properties but has closed on one or two of the properties and for whatever reason was unable to purchase or changed their mind about purchasing any remaining identified property. Under the regulations, the qualified intermediary can only release the funds to the taxpayer in of one of the following instances:


  1. At the end of the identification period, you have not selected and identified any replacement property.


  2. You have received all of the replacement property to which you are entitled under the exchange agreement.


  3. After the end of the identification period a material and substantial contingency occurs that relates to the deferred exchange, is provided for in advance writing in the exchange agreement, and such occurrence is beyond your control or the control of any disqualified person, as defined in Treasury Regulations Section 1.1031(k), other than the person obligated to transfer the replacement property to you (i.e., the replacement property you identified is destroyed by fire).


  4. After the 180-day exchange period has expired.


Plan ahead: If the exchanger knows they will have excess funds, it is possible, with the proper instruction, at the time the relinquished property closes, to have escrow pay the excess cash directly to the exchanger with the balance of the proceeds being paid to the qualified intermediary for the exchange. You must discuss this option with the qualified intermediary when setting up the exchange so the exchange documentation is properly prepared. Cash paid to the Exchanger is subject to capital gains tax.


As a qualified intermediary, JELD-WEN 1031 must adhere to these restrictions to meet the "safe-harbor" requirements as provided in the Treasury Regulations.