In order to avoid being taxed under section 1031, all proceeds received from the sale of a property must be transferred to a qualified intermediary, other than the seller of the property (Like Great Point Capital Exchange). The qualified intermediary transfers funds to the seller of the replacement property or properties. A qualified intermediary is a person or company that agreeably facilitates the 1031 exchange by holding the funds involved in the transaction until they can be transferred to the seller of the replacement property.
From the time of closing on the renounced property, the investor has 45 days to elect a potential replacement property (or properties) and a total of 180 days from closing to acquire the replacement property. The investor must identify the replacement property prior to midnight on the 45th day.
A standard 1031 exchange allows investors to sell their property before acquiring a new resource. 1031 exchanges allow investors to keep their money working for them. 1031 exchanges allow investors to reinvest 100% of their money right away; however, in the event they “cash out” they will pay capital gains taxes.
Once its established that an investors property is no longer a primary residence, but a rental property, a 1031 exchange can be completed and all the capital gains from a sale of that residence property can be differed.