Common 1031 Exchange Transactions

A Forward Exchange is the most widely used type of 1031 exchange. In this structure, you sell your current investment or business-use property first, then purchase replacement property within 180 days—all while deferring capital gains taxes under IRC Section 1031.

To ensure IRS compliance, a Qualified Intermediary (QI) like Standard Exchange, LLC must facilitate the process. Here's how it works step-by-step:

🔁 Forward Exchange Steps with Standard Exchange as Your QI

Step 1: Enter Purchase Agreement for Relinquished Property

You sign a purchase contract with the buyer of your relinquished property. This contract should include a standard “cooperation clause” to support exchange compliance. (Contact us for sample language.)

Step 2: Execute Exchange Documents

Standard Exchange provides the necessary 1031 exchange documents. These must be signed on or before the closing date of the relinquished property sale.

Step 3: Close on Relinquished Property / Fund the Exchange

At closing:

• The property is conveyed directly to the buyer.

• Standard Exchange steps into the transaction, effectively selling the property and receiving the exchange proceeds on your behalf.

• You never take possession of the funds—a key IRS requirement.

• Standard Exchange holds the funds in a secure, interest-bearing escrow account and provides you with the forms to identify replacement property within 45 days.

Step 4: Enter Purchase Agreement for Replacement Property

You negotiate and sign a contract to acquire the replacement property. Like before, this should include a cooperation clause.

Step 5: Identify Replacement Property & Sign Exchange Documents

• Replacement property must be formally identified in writing to Standard Exchange within 45 calendar days of the sale of the relinquished property.

• Standard Exchange provides and prepares the required exchange documents for the acquisition.

Step 6: Close on Replacement Property

Standard Exchange:

• Transfers exchange funds to the closing agent.

• Coordinates the final transfer so the seller deeds the property directly to you.

Behind the scenes:

• Standard Exchange purchases the property using your exchange funds and then transfers it to you—ensuring proper exchange structure under IRS rules.

📌 This closing must occur no later than:

• 180 calendar days after the relinquished property sale OR

• The due date of your federal tax return for that year (including extensions),
  whichever comes first.

Step 7: Final Reporting and Documentation

After the exchange:

• Standard Exchange provides a complete set of executed exchange documents,

• Plus a detailed statement of all funds received and disbursed—to support accurate filing of your federal and state tax returns.

For When Timing Doesn’t Go in Order

In some cases, you may need—or want—to acquire a replacement property before selling your relinquished property. This is where a Reverse 1031 Exchange comes into play.

At Standard Exchange, LLC, we facilitate reverse exchanges by acting both as your Qualified Intermediary (QI) and by establishing a special-purpose entity to serve as the Exchange Accommodation Titleholder (EAT). With our legal structure, experience, and security, we make complex reverse transactions efficient and IRS-compliant.

What Is a Reverse Exchange?

A reverse exchange allows you to acquire the replacement property first while still preserving 1031 tax-deferral benefits. Since IRS rules technically require the relinquished property to be “disposed of” before the replacement property is “acquired,” a workaround is required:

• A third-party entity (the EAT) temporarily holds title to either:

  • The replacement property (Exchange Last), or

  • The relinquished property (Exchange First)

This ensures proper sequencing under IRS rules.

Key Timelines Still Apply:

• 45 days to identify the relinquished or replacement property

• 180 days to complete the exchange from the EAT's acquisition date

Two Types of Reverse Exchanges We Facilitate

🔄 1. Exchange Last (Parking the Replacement Property)

This is the most common reverse exchange structure. You acquire the replacement property first—via the EAT—and sell your relinquished property later.

How it works:

• The EAT takes title to the replacement property, funded by you or a lender you arrange.

• Within 5 days, you and the EAT sign a Qualified Exchange Accommodation Agreement (QEAA) to define the terms.

• You lease the property from the EAT (typically under a triple-net lease), giving you control and economic benefit.

• You then have 45 days to identify the relinquished property and 180 days to sell it.

• Once sold, funds go to Standard Exchange (your QI), who uses them to acquire the replacement property from the EAT.

• The EAT uses those funds to pay off your loan or the lender and transfers the property to you.

If excess exchange funds remain, you can:

• Identify additional replacement property (within 45 days of sale of the relinquished property), or

• Receive the surplus as boot (potentially taxable).

🔁 2. Exchange First (Parking the Relinquished Property)

In this less common approach, the EAT holds title to your relinquished property while you immediately take title to the replacement property.

How it works:

• You transfer the relinquished property to the EAT, typically using a loan to the EAT and subject to existing financing.

• Simultaneously, you purchase the replacement property—both transactions are facilitated by Standard Exchange using direct deeding.

• A QEAA is executed within 5 days of the EAT taking title.

• When a buyer is found, the relinquished property is sold:

  • Proceeds repay existing debt and your original loan to the EAT.

  • Any remaining funds go to pay other related expenses or are returned to you as boot.

The sale must occur within 180 days of the EAT’s acquisition of the relinquished property.

Sometimes, simply acquiring a replacement property isn’t enough. You may want—or need—to construct improvements on that property during the exchange period. In these cases, a 1031 Improvement Exchange (also known as a Build-to-Suit or Construction Exchange) can help you defer capital gains taxes while tailoring the replacement property to your specific goals.

When Is an Improvement Exchange Used?

Improvement exchanges are most commonly used when:

• The sale of the relinquished property generates more funds than the cost of the replacement property alone

• You want to increase the value of the replacement property with new construction or upgrades during the 180-day exchange period

As long as the total value of the replacement property plus improvements equals or exceeds the sale proceeds, the full amount can qualify for tax deferral.

How It Works

• Standard Exchange establishes and manages the Exchange Accommodation Titleholder (EAT), which temporarily holds title to the replacement property.

• You direct and manage the construction, while the EAT holds legal title during the exchange period.

• Contractors and vendors can be paid directly by you, and the EAT reimburses those costs after the relinquished property is sold—allowing for real-time payments to contractors who require them.

• A Qualified Exchange Accommodation Agreement (QEAA) must be executed between you and the EAT within 5 days of the EAT acquiring the replacement property.

• The exchange must be completed within 180 days, with improvements funded and installed during that time.

Key Requirements & Considerations

✅ Identification Rules

Within 45 days of selling the relinquished property, you must identify:

• The replacement property, and

• Specific improvements that will be made to that property

🧱 What Qualifies as “Like-Kind”?

Only real property—land, structures, and improvements that are permanently affixed—qualifies for 1031 treatment. This means:

• Materials and labor do not qualify unless permanently installed

• To be counted toward the replacement value, improvements must:

  • Be physically affixed to the property

  • Be paid for while the EAT still holds title

🕒 What Happens After Day 180?

You must complete the transfer of the relinquished property and receive the improved replacement property within 180 days. Any improvements completed after that period do not qualify for deferral—but construction can still continue.

A simultaneous 1031 exchange occurs when the sale of the relinquished property and the acquisition of the replacement property close at the same time. While this may seem straightforward, these exchanges present unique timing and compliance challenges—especially when it comes to avoiding constructive receipt of funds.

Why Use Standard Exchange for a Simultaneous Exchange?

Even with simultaneous closings, the IRS requires strict adherence to 1031 exchange rules. If you are deemed to have received or controlled the proceeds—even briefly—the entire transaction can be disqualified. That’s where Standard Exchange steps in.

As your Qualified Intermediary (QI), Standard Exchange:

• Prepares all required exchange documents

• Coordinates with the escrow or closing agent to direct the proper flow of funds

• Ensures the exchangor never takes possession of the proceeds—preserving tax-deferral treatment

• Transfers title to the relinquished property to the appropriate party as part of the structured exchange

Important Note: Pre-Planning Is Essential

To qualify as a valid 1031 exchange, you must engage Standard Exchange before closing on either property. Last-minute exchanges may not be eligible for full tax deferral.

When to Consider a Simultaneous Exchange:

• When both the relinquished and replacement properties are ready to close concurrently

• When the transaction is time-sensitive but both sides are coordinated

• When flexibility to pivot into a forward or reverse exchange may be needed mid-process