Delayed exchanges offer real estate owners increased flexibility and control in the management of their assets. By making it possible to complete the first "leg" of an exchange prior to the actual acquisition of or even the identification of the "Replacement Property", the delayed exchange procedure allows Taxpayers more time to secure the exact Replacement Property they want while still enjoying the tax benefits of a simultaneous exchange.  Equity Preservation, Inc., (EPI), as the exchange intermediary, has successfully assisted thousands of real estate owners with delayed exchanges since 1980. During that time, EPI has developed a sound exchange program which it believes to be consistent with the Internal Revenue Service's regulations and guidelines. EPI will be happy to work closely with the Taxpayer and their broker, attorney, accountant, and settlement agent to accomplish the tax objectives of the Taxpayer's transaction. 

EPI's role in the delayed exchange process is that of an independent, third party principal. In this role EPI is referred to as the Exchange Intermediary. In accordance with the Exchange Agreement between the Taxpayer and EPI, our corporation will acquire the "Relinquished Property" from the Taxpayer. This is structured in the settlement by transferring the Relinquished Property from the Taxpayer to EPI pursuant to exchange escrow instructions. In exchange, the Taxpayer receives EPI's contractual obligation ("Exchange Agreement") to deliver a properly identified Replacement Property to the Taxpayer within the time period prescribed by the IRS.  Concurrent with this process, EPI will sell the Relinquished Property to a Buyer under the terms and conditions approved by the Taxpayer. In order to avoid duplication of escrow fees, transfer taxes and other costs; title to the Relinquished Property will be transferred directly from the Taxpayer to the Buyer in the settlement file established for EPI's sale of the Relinquished Property. The proceeds from this sale are then paid to EPI in the form of cash and/or notes, depending upon the structure of the transaction. Net Proceeds are then held by EPI as the "Net Exchange Value" of the Relinquished Property. This represents the completion of Phase I of the exchange. 

The additions Congress made to Section 1031 afford the property owner a good deal of flexibility in structuring a delayed exchange. The regulations and guidelines specify certain requirements including specific timing requirements. First, the Replacement Property must be identified in a manner required by the regulations within 45 days from the settlement date for the transfer of the Relinquished Property. Second, the Replacement Property must be acquired on or before the earlier of the following dates: (1) 180 days from the settlement of the Relinquished Property; OR (2) The tax filing date of the tax return due for the taxable year in which the initial transfer occurred. However, the Taxpayer does have the right to extend the due date for the tax return under the applicable rules for extension.  These rules apply to both individuals and corporations. A corporation's due date for its tax return may vary, however, depending on its own fiscal calendar. In other words, a corporation engaging in a delayed exchange would have 180 days or until the tax filing date for the fiscal year in which to the transaction was initiated to acquire the Replacement Property and complete the exchange. Obviously, the end of a corporation's fiscal year may or may not fall on the end of the calendar tax year.  Therefore, a corporation which would convey an exchange property on the last day of its fiscal year would have two-and-a-half months to acquire the Replacement Property without filing for an extension. 

In addition to the timing requirements, the Section 1031 regulations and guidelines contain specific requirements concerning the identification of Replacement Property. These requirements include limits on the number of Replacement Properties that may be identified and requirements on the content and procedures for identification of Replacement Property. The identification must also be in writing and must be delivered to the intermediary or another person involved in the exchange (other than the Taxpayer or a disqualified person) within the 45 day identification period. Regardless of the number of properties the Taxpayer relinquishes as part of the same exchange, the rules regarding the maximum number of identified properties are as follows:

When the Taxpayer locates the property he wants to acquire, EPI can assist the Taxpayer in documenting the identification of the Replacement Property or Properties to be delivered to the Taxpayer and establishing the structure of the settlement in order to complete the exchange transaction. Using the Net Exchange Value it has maintained, EPI will acquire the Replacement Property and then immediately convey the Replacement Property to the Taxpayer. Again in order to avoid the duplication of fees required from two deeds, title to the Replacement Property will be transferred directly from the Replacement Property Seller to the Taxpayer. This step completes Phase II of the exchange process, securing for the Taxpayer the right property at the right time -- while preserving the potential tax benefits of a simultaneous exchange. 

The Taxpayer should consult with their tax advisor to determine if an exchange is in their best interest prior to entering an exchange.  Exchange intent and cooperation language should always be present in the Relinquished Property sale contract as well as the Replacement Property purchase contract.  A qualified intermediary must be brought in prior to the close of the Relinquished Property (after closing is too late). Time should be allowed for the intermediary to interact with the settlement agent to insure the proper structure of the Relinquished Property settlement papers and statements.  The Taxpayer must exchange for like-kind property in order to qualify for deferral of gain. Some examples of like-kind are: single-family residences, multi-family residences, offices, land, hotels and motels, warehouses, condominiums, retail, manufacturing, 30+ year leases, etc., provided such property is held by the Taxpayer for investment or use in their trade or business.  Taxpayer must trade into a Replacement Property or Properties that are equal or greater in both the amount of debt and equity that the Relinquished Property had at the time it closed if a fully tax deferred exchange is desired.  Prior to final identification of the Replacement Properties is a good time for the Taxpayer to review again their exchange objectives with their accountant.  The identification/revocation rules and time requirements must be satisfied in order to have a successful exchange.  The Replacement Property must be delivered to the Taxpayer by the intermediary no later than 180 days from the settlement date of the Relinquished Property.  The Taxpayer should have their accountant report their exchange for the year the Relinquished Property closed utilizing the appropriate tax filing forms for exchanges. 

Equity Preservation, Inc., has developed, in accordance with all the IRS guidelines, a program for delayed exchanges which simplifies even the most seemingly complex transactions. EPI's independent, third-party status, coupled with unilateral control of all proceeds from the exchange, can greatly reduce the problems associated with "agency relationship" and "constructive receipt" of the proceeds held by EPI. EPI considers its role as that of an independent entity in the transaction and not as an agent for either party in the exchange transaction.  Other features of the EPI program include the potential to easily combine the value of several properties into the exchange process, the ability to easily move assets from one state to another, the potential use of a Standby Letter of Credit to provide additional security for a Taxpayer's Net Exchange Value, and the ability to preserve the tax position of an exchange even when an owner finds it difficult to complete a simultaneous exchange transaction.  This last point is very important. Many times a property owner, while attempting to complete a tax-deferred exchange will encounter difficulties in completing a simultaneous transfer of title. Often times the owner will elect to (or more often be forced to) close the transaction as a sale -- and thereby accept the tax consequences of an outright sale. In this situation, EPI can be called upon to quickly assist the owner in restructuring the transaction as a delayed exchange, thereby preventing the unwanted tax consequences of a sale from taking place. 

Equity Preservation, Inc. has been providing able, professional and trusted assistance to real estate owners since 1980. We have successfully exchanged well over ten thousand properties during this time period and have encountered all of the special situations as mentioned below. EPI has established itself as on the of most experienced and innovative intermediaries and has assisted many simultaneous, delayed, out of state, multi-party and multi-property transactions.  There are many special situations that may arise in each particular transaction that can influence the exchange and its tax consequences. Some of these areas in which EPI has encountered are: family trusts, vesting versus tax reporting, exchanges with related parties, equity sharing arrangements, seller carry back loans, receiving cash from the exchange, at risk capital rules, properties to be constructed, repossessed properties, probate sales, bankruptcy sales, equity purchase laws, purchase option agreements, financing, depreciation recapture rules and out of state transactions.  EPI can work with your own tax advisor to accomplish these unique types of exchanges.  Real estate owners seeking to find a reputable and experienced exchange intermediary will find that a long established record of providing fast, professional and knowledgeable service becomes extremely important to their contemplated exchange transaction.  EPI upon request will gladly offer a referral list of satisfied property owners, brokers, attorneys, accountants and settlement agents with whom they have worked.  For more information on real property exchanges and how you can take advantage of them, feel free to contact the professionals at EPI and let them assist you with your particular exchange situation. EPI offers competitive fees, knowledgeable staff and valuable services. 

LET EPI HELP YOU PRESERVE THE LION'S SHARE OF YOUR EQUITY.

None of the information contained in this brochure should be construed as legal, tax or investment advice, or a representation that any desired tax consequence will be achieved. Equity Preservation, Inc. strongly advises anyone considering a simultaneous or delayed exchange to consult with their own legal, tax and investment advisors in connection with such a transaction. 