Relinquished Property Exchangor

In a 1031 exchange, the relinquished property exchangor must first enter into a written agreement to sell the relinquished property. That triggers the 45 day identification period the exchangor has to identify properties to replace the relinquished property. The exchangor must enter into an agreement with an intermediary and assign the sales contract to them.

The Taxpayer: The Relinquished Property Exchangor

During the closing, the sale proceeds go to the intermediary's escrow account. The title will then be transferred to the buyer. The relinquished property exchangor then works on getting a replacement property. If he or she finds that property before selling the original property, it is known as a reverse 1031 exchange.

The next step of a forward exchange involves purchasing the replacement property. After closing on the sale of the original property, the relinquished property exchangor has 180 days to close on replacement property. He or she enters into a contract to purchase it then assigns the contract to the intermediary.

At closing, the profit from the sale goes to the closing company for the purchase, and the title is transferred to the exchangor. The 1031 exchange is a great way to defer paying capital gains taxes and one that many investors take advantage of. While not completely tax free, it is like getting an interest free loan from the IRS.