1031 exchange Qualified Intermediary Accommidation Title Holder, 1031 Exchange Specialists, Inc., National Qualified Intermediary,Tax deferred Like Kind 1031ESI Ocean City, NJ 1031 Exchange Process

Independently Owned and Operated

SERVICING ALL 50 STATES!

Your Tax Savings is Our Business!

THE EXCHANGE PROCESS

History of Exchanges

The non-recognition of gain or loss on the exchange of property was first introduced in 1921, some three years after the imposition of income taxes, on the basis of continuity of investment or liquidity, and administrative convenience. The early exchanges were direct simultaneous exchanges between two and three property owners.

In 1979, the famous Starker case became the legal basis for the non-simultaneous exchange.

In 1984, Congress established time limits for a non-simultaneous exchange, requiring the Exchangor to identify replacement properties within 45 days and settlement on the replacement property(s) within 180 days following the date the first property relinquished. The ineligibility of exchanging partnership interests was also introduced in the 1984 amendments.

In 1989, new rules for exchanges between related persons were added.

In 1991, the IRS issued regulations addressing the role of the Qualified Intermediary, safe harbor rules, assignments of contracts, security of exchange funds, identification requirements, treatment of interest and disqualified parties.

In 1997, the Internal Revenue Code provided that personal property used predominantly within the United States was not "like kind" to the personal property used predominantly outside the United States.

In 2000, the IRS issued Revenue Procedure 2000-37 providing safe harbors for reverse parking arrangements.

In 2005, the I.R.S. issued Revenue Procedures 2005-7 and 2005-14 clarifying the exclusion of tax on properties used both for business/investment use and as a principal residence, thus combining the tax savings of Sections 1031 and 121.

In 2008, the I.R.S. issued Revenue Procedure 2008-16 providing safe harbor guidelines for 1031 exchanges of vacation homes.

Among the many modifications to the Internal Revenue Code under The Tax Cuts and Jobs Act, H.R. 1 (2017), 1031 exchanges are limited to real property held in the productive use in a trade or business or for investment. Personal property, such as furniture, fixtures and equipment, will not be afforded 1031 exchange deferment after January 1, 2018.

The Process is Simple!

1. Market your property for sale.

2. Find a qualified Buyer.

3. Enter into a Contract of Sale with your Buyer.

4. Execute an Exchange Agreement and other exchange documents with us.

5. Assign your relinquish property contract rights to us, as Qualified Intermediary.

6. Provide us with the Settlement Agents contact information.

7. Schedule settlement of your relinquish property.

8. Relinquish the benefits and burdens of ownership to the Buyer.

9. Find a suitable replacement property and 2 alternates, if applicable.

10. Identify your replacement property to us by the 45^th day.

11. Enter into a Contract of Sale with the Seller.

12. Where applicable, apply for mortgage monies, complete inspections, etc.

13. Assign your replacement property contract rights to us, as Qualified Intermediary.

14. Provide us with the Settlement Agents contact information.

15. Schedule settlement of the replacement property.

16. Assume the benefits and burdens of ownership from the Seller by the 180^th day, or tax return due date, whichever comes first.

The Exchange Documents

A. Exchange Agreement, is a written contract between our Company and you. It is the basis by which we act as your Qualified Intermediary for the sale of the above property, as well as the acquisition of your replacement property(s).

B. Assignments of Relinquished and Replacement Property Purchase and Sale Agreement, documents your assignment of contract rights, title and interest in, and to the subject property to us, as Qualified Intermediary.

C. Addendum to Relinquished and Replacement Property Purchase and Sale Agreement, adds 1031 language to the contract between you and your purchaser.

D. Notice of Assignment of Relinquished and Replacement Property Purchase and Sale Agreement, formally notifies buyer of relinquished property and seller of replacement property that you have assigned to us, as Qualified Intermediary all rights but not obligations under the Agreement of sale, we, as Qualified Intermediary have accepted the assignment.

E. Direction Letter, instructs a seller of replacement property to execute a deed whereby conveying legal title directly from Seller to you, as Exchangor.

F. The W-9 Form, serves as verification of your tax identification number for bank and I.R.S. usage.

G. I.R.C. 1031 Advisory, addresses areas of importance when completing a 1031 exchange.

The Identification Rules

There are three (3) methods used to identify replacement properties. You should choose the one method that is most applicable to your situation. The property address and/or legal description are required for each of the following categories.

1. The Three Property Rule - You may identify any three properties without restriction as to value or any requirement to acquire more than one of those identified, you may exchange for one, two, or all three. Most commonly used rule.

2. The 200% Rule - Where the number of identified replacement properties exceeds 3 and the aggregate fair market value does not exceed twice that of the relinquished property value, you may acquire any number of these identified properties through this exchange. Your identification must also include the fair market value of each property.

3. The 95% Rule - Where the number of identified replacement properties exceeds 3 and the aggregate fair market value exceeds twice that of the relinquish property value, you may identify any number of properties of any value as long as you acquire 95% of all properties identified as part of this exchange. Your identification must also include the fair market value of each property.

You may identify any type of investment or business property - single family rental, duplex, apartment building, hotel, office building, warehouse, commercial building, vacant land, etc.

You may identify property in any state of the United States. Your identification must be specific as to what you intend to purchase. For example, if you intend to purchase only a percentage interest in a piece of property, you must identify it as "__% interest or $__________ interest in replacement property." There are restrictions on acquiring property from related persons. If you plan to do so, please call us.

This identification must be signed, dated and RECEIVED in our office no later than midnight on the 45th day. According to the 1031 regulations, there can be NO changes to your identification after the 45th day. Property substitutions may only occur within the 45 day identification period. All substitutions must also be in writing, signed, dated, received in our office by midnight on the 45th day and include a notice of withdrawal of any previously identified properties.

Please note, the replacement property must be taken in the same name(s) as the relinquished property previously sold. Closing on all of the replacement properties must be completed by the 180th day after closing on the relinquished property, or by the filing deadline of your federal income tax return for the year in which the exchange began, whichever comes first. (You may find it necessary to have your tax advisor extend your tax return filing date to accommodate the closing of your replacement property)

Items to Consider

• Applicability of an I.R.C. 1031 exchange for your specific situation.

• State recognition of I.R.C. 1031 exchanges.

• Deductibility of expenses incidental to the acquisition and disposition of property.

• Special provisions for selling to or purchasing from a related person.

• Tax reporting requirements of an I.R.C. 1031 exchange.

• Rules and time frames for completing an I.R.C. 1031 exchange.

• Requirements for identifying replacement property under the 45-day rule.

• Requirements for personal property incidental to the exchange. (e.g. furniture and furnishings)

• Purchasing a replacement property of lesser value than the property relinquished.

• Increasing/decreasing mortgages in an I.R.C. 1031 exchange.

• Safe Harbors for holding 1031 funds.

• Rules for returning funds to you during the exchange or upon completion.

• Consistency in title for relinquished and replacement properties.

• Reporting interest income earned on exchange escrow funds in the proper tax year.

*CPA lic. Inactive

1031 Exchange Specialists, Inc. - 1155 Asbury Avenue - Ocean City - New Jersey 08226

Phone (609) 398-1031 - Toll Free (877) 513-1031 - Fax (609) 398-0500 - Email: info@1031ESI.com

1031 Exchange Specialists, Inc is not engaged in rendering legal, tax, or accounting services.

If legal, tax, or accounting advice is required, the services of an independent professional should be sought.

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