Our Services: How a Tax Free Exchange Works

Tax Free Exchange Service, Inc. acts as your Qualified Intermediary, as defined in IRS Section 1031. We open a Money Market Escrow Account for cash sale proceeds and manage the funds until the exchange is complete.

Here are the basic steps of the process:

  1. You, the “exchangor,” identify the property to be exchanged (also known as “relinquished property”) and secure the help of a Realtor. Then call us at Tax Free Exchange Service, Inc. to schedule a free consultation.

    Property can be real estate or other type of property (such as equipment) owned by a business or investment enterprise. This should be carefully analyzed to be sure it meets the “like kind” test.
  2. We meet with you, the exchangor. Your Realtor writes special notifications into the contract to comply with IRS and State Contract requirements. This notifies all parties that the property is being sold as part of a tax-deferred exchange.
  3. We then prepare an Exchange Agreement which details rights and responsibilities of all parties involved in the exchange, which will be executed by all parties. This contract identifies the relinquished property, discloses valuations of the exchange, deadlines for identifying replacement property and purchase of replacement property.
  4. When a buyer is secured and the contract is signed, the Closing Attorney schedules a date for the closing.
  5. Tax Free Exchange Service, Inc. sends written instructions to the closing attorney describing the intermediary relationship and verifies that closing documents are titled properly to conform to IRS Exchange Rules.
  6. We attend at least one closing with you, where feasible, and receive Escrow funds from your relinquished property. The funds are deposited in a Money Market Escrow Account.
  7. Identification of prospective Replacement is required within 45 days after the sale. We provide this document for you to fill in and return to us on the 45th day.
  8. Replacement property must be purchased by the 180th day after sale. When you have a Purchase Contract and the Attorney schedules the Purchase date. Tax Free Exchange Service, Inc. sends written instructions to the Closing Attorney describing the intermediary relationship and verifies that closing documents are titled properly to conform to IRS Exchange Rules.
  9. We release your funds for the closing of the purchase.
  10. Tax Free Exchange Service sends you, the exchangor, accounting documentation of the Exchange transactions for your assistance in your tax filing of the Exchange.

Tax Free Exchange Service, Inc. has performed hundreds of these exchanges for our clients. Schedule your free consultation to learn how a tax free exchange will benefit you in your next real property investment!