How does a 1031 Exchange work?
Typically, as a company outgrows its building, it develops a need for more space, and thus a new location. In a retail setting, the desire is to add new stores while reducing underperforming or older units. In each of these situations, the property to be sold, known as the relinquished property, is exchanged with the property to be purchased, known as the replacement property. At the sale of the relinquished property, the proceeds are not tendered to the seller, also known as the exchangor. Rather, they are placed into an escrow account with a qualified intermediary, who holds the funds for eventual disbursement to pay for the purchase of the replacement property. Exchangor has 45 days to identify a limited number of replacement properties and 180 days to close on the purchase of the replacement property. If these and other technical requirements of the tax code are met, the exchangor will be able to roll the proceeds from the sale into the new facility and be spared from paying any ta
