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Vacation Home Guidance
Revenue Procedure 2008-16 Creates Safe Harbor
1031
Knowledge
Revenue Procedure 2008-16 (the “Procedure”) created a safe harbor definition of investment property applicable to IRC
Section 1031 exchange transactions closing after March 10, 2008, that involve the transfer of property consisting of a
dwelling unit (defined below) and/or the acquisition of a dwelling unit as replacement property. In short, the IRS will not
challenge whether a residential property or vacation home property is held for productive use in a trade or business or for
investment if certain specified ownership and use requirements are met. This safe harbor Procedure provides useful guidance
on the characterization of vacation property and may also be useful for planning purposes such as the conversion of a
principal residence into a qualifying relinquished property.
REQUIREMENTS OF REVENUE PROCEDURE 2008-16
A dwelling unit is defined as any real property improved with a house, apartment, condominium, or similar improvement that
provides basic living accommodations including a sleeping space, bathroom and cooking facilities (e.g., a residential property).
The IRS will not challenge whether a dwelling unit qualifies as §1031 exchange like-kind property held for productive use in a
trade or business or for investment if: (1) the relinquished property is owned by the taxpayer for at least 24 months
immediately prior to the 1031 exchange and a replacement property is owned for at least 24 months immediately after the
1031 exchange (the “qualifying use period”), and, (2) within each of the two 12-month periods constituting the qualifying
use period, the taxpayer must:
a) Rent the property to another person or persons at a fair market rent for 14 or more days; and,
b) The taxpayer’s personal use of the dwelling unit cannot exceed the greater of 14 days or 10 percent of the
number of days during the 12-month period the dwelling unit is rented at a fair market rent.
Under the Procedure, personal use of a dwelling unit occurs on any day in which the taxpayer is deemed to use the property
for personal purposes under §280A(d)(2) (taking into account §280A(d)(3) but not §280A(d)(4)). Thus, personal use includes:
(1) use by the taxpayer or any other person who has an interest in the property or by a family member; (2) use by any
individual who uses the unit under an arrangement which enables the taxpayer to use some other dwelling unit (whether or
not a rental is charged for the use of such other unit); or (3) use by any other individual if rented for less than fair market
value. A taxpayer can rent the property to a family member if the family member pays fair market rent. Whether a dwelling
unit is rented at a fair market rental rate is determined based on all the facts and circumstances that exist when the rental
agreement is entered into. All rights and obligations of the parties to the rental agreement are taken into account.
The Procedure provides a safe harbor for purposes of characterizing investment property for purposes of IRC §1031. Of
course, any qualifying 1031 exchange must meet all other applicable legal requirements of §1031. Every taxpayer should
consult with their legal and tax advisor before engaging in any 1031 exchange to review their unique facts and circumstances.
Asset Preservation, Inc. (API) is a qualified intermediary as defined in the regulations under Internal Revenue Code §1031. Neither API, it’s officers or employees are authorized or permitted under applicable laws to provide tax or
legal advice to any client or prospective client of API. The tax related information contained herein or in any other communication that you may have with a representative of API should not be construed as tax or legal advice
specific to your situation and should not be relied upon in making any business, legal or tax related decision. A proper evaluation of the benefits and risks associated with a particular transaction or tax return position often
requires advice from a competent tax and/or legal advisor familiar with your specific transaction, objectives and the relevant facts. We strongly urge you to involve your tax and/or legal advisor (or to seek such advice) in any
significant real estate or business related transaction. © 2018 Asset Preservation, Inc. All rights reserved.
HQ 800.282.1031 | NY 866.394.1031
apiexchange.com | info@apiexchange.com
Compliments of:
Lynne Bagby, CES
Division Manager- New England
Asset Preservation, Inc.
800-883-1031 | 781-808-1364 -cell
lynne@apiexchange.com | www.apiexchange.com
RELINQUISHED PROPERTY SALE (PHASE I)
Contract:
1. Negotiate and sign the purchase and sale agreement (contract) for the sale of the relinquished property as the seller
and/or assignee.
2. If possible, include language in the contract to establish an intent to perform a 1031 exchange and have the buyer
agree to an assignment of the contract. (Contact API for the suggested 1031 exchange cooperation language.)
Closing:
1. Contact Asset Preservation, Inc. (API), after the purchase and sale agreement has been signed by all parties. The
1031 exchange must be set up prior to the relinquished property closing.
2. Information needed by API:
a. Phone number, email and reference number for closing officer/closing attorney;
b. Taxpayer’s mailing address, phone number, and email;
c. Sales price and approximate debt owed (mortgage payoff amount);
d. Legal vesting as reflected on title;
e. Copy of the Title Commitment; and,
f. Will the taxpayer be providing seller carryback financing (i.e. carrying a note) on the sale of the relinquished
property?
3. API will contact the closing officer/closing attorney and forward the Exchange Agreement and necessary 1031
exchange documents.
4. Copies of all documents will be forwarded to the taxpayer via email.
5. The closing officer/closing attorney will obtain all signatures on the Exchange Agreement and all exchange
documents.
6. Once all parties have signed and all closing conditions are met, the transaction is closed.
7. Exchange proceeds will be wired by the closing officer/closing attorney to API.
Stages of a 1031 Exchange
Follow These Simple Steps for a Successful Transaction
1031
Knowledge
Asset Preservation, Inc. (API) is a qualified intermediary as defined in the regulations under Internal Revenue Code §1031. Neither API, it’s officers or employees are authorized or permitted under applicable laws to provide tax or
legal advice to any client or prospective client of API. The tax related information contained herein or in any other communication that you may have with a representative of API should not be construed as tax or legal advice
specific to your situation and should not be relied upon in making any business, legal or tax related decision. A proper evaluation of the benefits and risks associated with a particular transaction or tax return position often
requires advice from a competent tax and/or legal advisor familiar with your specific transaction, objectives and the relevant facts. We strongly urge you to involve your tax and/or legal advisor (or to seek such advice) in any
significant real estate or business related transaction. © 2018 Asset Preservation, Inc. All rights reserved.
HQ 800.282.1031 | NY 866.394.1031
apiexchange.com | info@apiexchange.com
Compliments of:
Lynne Bagby, CES
Division Manager- New England
Asset Preservation, Inc.
800-883-1031 | 781-808-1364 -cell
lynne@apiexchange.com | www.apiexchange.com
REPLACEMENT PROPERTY PURCHASE (PHASE II)
Identification:
1. The taxpayer has 45-calendar days from closing on the relinquished property to identify replacement property.
a. For a 1031 exchange to be fully tax deferred, a taxpayer must acquire replacement property of equal or
greater net sales price and reinvest all of the net proceeds from the relinquished property sale.
2. API will forward the following to the taxpayer:
a. Date the relinquished property closed;
b. 45th day for the Identification Date requirement;
c. 180th day for the exchange period requirement;
d. Confirmation of receipt of exchange proceeds; and,
e. “Replacement Property Identification Letter” which outlines the specific identification rules
3. Forward the signed “Replacement Property Identification Letter” with the property or properties identified before
midnight of the 45th date from the relinquished property sale closing.
Contract:
1. Sign the purchase and sale agreement for the purchase of the replacement property as the buyer and/or assignee.
2. If possible, include language in the contract to establish an intent to perform a 1031 exchange and have the seller
agree to an assignment of the contract.
Closing Stage:
1. Contact API after signing the Purchase Contract.
2. Information needed by API:
a. Phone number, email and reference number for closing officer/closing attorney;
b. Purchase Price; and,
c. Will an earnest money deposit be needed from API account?
3. API will contact the closing officer/closing attorney and prepare the necessary exchange documents and withdrawal
authorization.
4. The closing officer/closing attorney will obtain signatures on all necessary exchange documents.
5. After all parties have signed the exchange documents and API receives the withdrawal authorization from the closing
agent, the exchange proceeds being held by API will be wired to the closing officer’s/closing attorney’s account.
Stages of a 1031 Exchange
Follow These Simple Steps for a Successful Transaction
1031
Knowledge
Asset Preservation, Inc. (API) is a qualified intermediary as defined in the regulations under Internal Revenue Code §1031. Neither API, it’s officers or employees are authorized or permitted under applicable laws to provide tax or
legal advice to any client or prospective client of API. The tax related information contained herein or in any other communication that you may have with a representative of API should not be construed as tax or legal advice
specific to your situation and should not be relied upon in making any business, legal or tax related decision. A proper evaluation of the benefits and risks associated with a particular transaction or tax return position often
requires advice from a competent tax and/or legal advisor familiar with your specific transaction, objectives and the relevant facts. We strongly urge you to involve your tax and/or legal advisor (or to seek such advice) in any
significant real estate or business related transaction. © 2018 Asset Preservation, Inc. All rights reserved.
HQ 800.282.1031 | NY 866.394.1031
apiexchange.com | info@apiexchange.com
Compliments of:
Lynne Bagby, CES
Division Manager- New England
Asset Preservation, Inc.
800-883-1031 | 781-808-1364 -cell
lynne@apiexchange.com | www.apiexchange.com
Member:
THE API ADVANTAGE™
EXPERIENCE
Established in 1990, API has successfully facilitated
over 175,000 real property exchanges and is recognized
as one of the leading Qualified Intermediary companies
in the nation.
EXPERTISE
API’s Senior Exchange Counselors, attorneys and CPAs
are available to discuss exchanges of any complexity —
from standard delayed to improvement and reverse
exchange transactions.
SECURITY
Our foremost concern is security of the exchange
proceeds, as exemplified by our additional security
measures. Highlights of The API Advantage™ are:
•	 Through a “Letter of Assurance,” Stewart Information
Services Corporation (NYSE: STC) provides a Third Party
Guarantee (a safe harbor under the 1991 Treasury Rules
and Regulations) that “assures” the performance of
API.
•	 Exchange funds are not commingled with API’s
operating accounts. API offers multiple investment
options to suit our customer’s needs. In addition, our
customers may request that API obtain their notarized
signature for the movement of funds - another security
feature.
•	 Fidelity bond insurance coverage and Errors and
Omissions insurance.
TO LEARN MORE, CALL ASSET PRESERVATION, INC.
National Headquarters: (800) 282-1031
Eastern Regional Office: (866) 394-1031
(As a “Qualified Intermediary” as defined in the Section 1031 regulations)
Asset Preservation, Inc. is not able to provide legal or tax advice.
Accordingly, you should review the details of your specific transaction with
your own legal or tax advisor.			
ASSET PRESERVATION, INC.
		 EXPERTS IN THE 	
POWER OF EXCHANGE™
	 Savvy investors know that Internal Revenue Code
(IRC) Section 1031 provides a vehicle for deferring
capital gain taxes while disposing of investment
property. The United States Treasury Department
has validated the services of a “Qualified
Intermediary” to complete a tax deferred exchange.
Asset Preservation, Inc. (API), a Stewart subsidiary,
is a national leader in the 1031 Qualified
Intermediary industry. We have a history of
protecting investors’ assets through our expertise
in specialized services that can defer capital gain
taxation indefinitely. At API, we’re committed
to providing investors with the highest level of
experience, expertise and security of funds in the
industry — what we call The API Advantage™.
OUR VISION
Excelling as the premier §1031 “Qualified
Intermediary” company nationally by delivering
superb service and the highest levels of proceeds
security and value-added solutions from the
industry’s foremost experts.
Visit www.apiexchange.com
Capital Gain Tax Calculation
Sign up for §1031 Exchange Updates
Open New §1031 Exchange Online
45/180 Day Calendar
Useful Tax Links
A National IRC §1031 “Qualified Intermediary”
www.apiexchange.com
info@apiexchange.com
National Headquarters
(800) 282-1031
(916) 791-5991
Eastern Regional Office
(866) 394-1031
(631) 369-3617
ASSET PRESERVATION, INC.
THE POWER OF EXCHANGE™
© 2018 Asset Preservation, Inc.
“LIKE-KIND” PROPERTY
EXCHANGER
BUYER
DEED
DEED
SALE
relinquished
property
ASSET PRESERVATION, INC.
$ $ SELLER
PURCHASE
replacement
property
0 45
days
180
days
IDENTIFICATION PERIOD
TOTAL EXCHANGE PERIOD
THE DELAYED EXCHANGE PROCESSTHE POWER TO PROTECT,
GROW AND DIVERSIFY
Thanks to the IRC §1031, a properly structured exchange
allows an investor to sell an investment property, and
acquire a new property, and potentially defer all capital
gain taxes. IRC §1031 (a) (1) states:
No gain or loss shall be recognized on the exchange
of real property held for productive use in a trade
or business or for investment if such real property
is exchanged solely for real property of like kind
which is to be held either for productive use in a
trade or business or for investment.
THE POWER OF FLEXIBILITY
Pursuant to IRC §1031, capital gain deferment requires
the exchange of “like-kind” relinquished property for
other “like-kind” replacement property. Generally, real
property held for investment or real property used in a
trade or business can be exchanged for other real proper-
ty held for investment or real property used in a trade or
business.
THE EXCHANGE EQUATION:
100% TAX DEFERRAL
To fully defer all capital gain taxes, an exchanger must
meet two requirements:
1.	Reinvest all exchange proceeds to acquire like-kind property.
2.	Acquire like-kind property of equal or greater value.
WHAT’S THE FIRST STEP?
Always discuss a §1031 tax deferred
exchange with your tax and/or
legal advisors.
Call Asset Preservation for
a free consultation, and
definitely before closing
on the relinquished
property.
Include language stating
the intent to perform
a §1031 tax deferred
exchange in the Purchase
and Sale Agreement:
“Buyer is aware that Seller
intends to perform an IRC §1031
tax deferred exchange. Seller requests
Buyer’s cooperation in such an exchange
and agrees to hold Buyer harmless from any and
all claims, liabilities, costs or delays in time resulting from such
an exchange. Buyer agrees to an assignment of this contract to
Asset Preservation, Inc., by the Seller.”
EXCHANGE: POWERFUL STRATEGIES
THE DELAYED EXCHANGE
A delayed exchange is the most common exchange format.
It provides investors up to 180 days to acquire replacement
property through the use of a Qualified Intermediary to
complete a valid delayed exchange. (This process is further
explained in the diagram to the right.)
THE IMPROVEMENT EXCHANGE
Improvement (build-to-suit or con-
struction) exchanges allow an
investor to use exchange pro-
ceeds to either (1) make
improvements to a new
replacement property or
(2) build a new replace-
ment property.
THE REVERSE
EXCHANGE
A reverse exchange is the
purchase of the replace-
ment property prior to
closing on the relinquished
propertystructuredthroughthe
useofanexchangeaccommodation
titleholder, otherwise known as an
(EAT).
SALE OF THE RELINQUISHED PROPERTY
Prior to closing the sale of the relinquished property, the
Exchanger enters into the Exchange Agreement with API.
Pursuant to the Exchange Agreement, an Assignment
is executed prior to closing, and Exchanger assigns its
rights under the Purchase and Sale Agreement to API.
API instructs the closing/escrow officer or closing attorney
to directly deed the property from the Exchanger to the
Buyer. Proceeds are transferred directly to the Qualified
Intermediary, thereby protecting the Exchanger from actual
or constructive receipt of funds. Please note that §1031
Regulations mandate restrictions on the Exchanger’s ability
to access exchange proceeds at any time. Please consult
with API for more details on these restrictions.
IDENTIFICATION OF REPLACEMENT PROPERTY
The Exchanger must properly identify potential replacement
properties within 45 calendar days. API provides the
Exchanger with the specific identification requirements.
PURCHASE OF THE REPLACEMENT PROPERTY
The Exchanger has a total of 180 calendar days from
closing of the relinquished property, or their tax filing date
(including extensions), whichever is earlier, to acquire
“like-kind” replacement properties. Prior to closing on the
replacement property, the Exchanger assigns the Purchase
and Sale Agreement to the Qualified Intermediary. After the
Assignment is executed, the exchange is completed when
the Qualified Intermediary purchases the replacement
property with the exchange proceeds and transfers it back
to the Exchanger by a direct deed from the Seller.

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Snowbirding 101 Ep 03: 1031 exchange information

  • 1. Vacation Home Guidance Revenue Procedure 2008-16 Creates Safe Harbor 1031 Knowledge Revenue Procedure 2008-16 (the “Procedure”) created a safe harbor definition of investment property applicable to IRC Section 1031 exchange transactions closing after March 10, 2008, that involve the transfer of property consisting of a dwelling unit (defined below) and/or the acquisition of a dwelling unit as replacement property. In short, the IRS will not challenge whether a residential property or vacation home property is held for productive use in a trade or business or for investment if certain specified ownership and use requirements are met. This safe harbor Procedure provides useful guidance on the characterization of vacation property and may also be useful for planning purposes such as the conversion of a principal residence into a qualifying relinquished property. REQUIREMENTS OF REVENUE PROCEDURE 2008-16 A dwelling unit is defined as any real property improved with a house, apartment, condominium, or similar improvement that provides basic living accommodations including a sleeping space, bathroom and cooking facilities (e.g., a residential property). The IRS will not challenge whether a dwelling unit qualifies as §1031 exchange like-kind property held for productive use in a trade or business or for investment if: (1) the relinquished property is owned by the taxpayer for at least 24 months immediately prior to the 1031 exchange and a replacement property is owned for at least 24 months immediately after the 1031 exchange (the “qualifying use period”), and, (2) within each of the two 12-month periods constituting the qualifying use period, the taxpayer must: a) Rent the property to another person or persons at a fair market rent for 14 or more days; and, b) The taxpayer’s personal use of the dwelling unit cannot exceed the greater of 14 days or 10 percent of the number of days during the 12-month period the dwelling unit is rented at a fair market rent. Under the Procedure, personal use of a dwelling unit occurs on any day in which the taxpayer is deemed to use the property for personal purposes under §280A(d)(2) (taking into account §280A(d)(3) but not §280A(d)(4)). Thus, personal use includes: (1) use by the taxpayer or any other person who has an interest in the property or by a family member; (2) use by any individual who uses the unit under an arrangement which enables the taxpayer to use some other dwelling unit (whether or not a rental is charged for the use of such other unit); or (3) use by any other individual if rented for less than fair market value. A taxpayer can rent the property to a family member if the family member pays fair market rent. Whether a dwelling unit is rented at a fair market rental rate is determined based on all the facts and circumstances that exist when the rental agreement is entered into. All rights and obligations of the parties to the rental agreement are taken into account. The Procedure provides a safe harbor for purposes of characterizing investment property for purposes of IRC §1031. Of course, any qualifying 1031 exchange must meet all other applicable legal requirements of §1031. Every taxpayer should consult with their legal and tax advisor before engaging in any 1031 exchange to review their unique facts and circumstances. Asset Preservation, Inc. (API) is a qualified intermediary as defined in the regulations under Internal Revenue Code §1031. Neither API, it’s officers or employees are authorized or permitted under applicable laws to provide tax or legal advice to any client or prospective client of API. The tax related information contained herein or in any other communication that you may have with a representative of API should not be construed as tax or legal advice specific to your situation and should not be relied upon in making any business, legal or tax related decision. A proper evaluation of the benefits and risks associated with a particular transaction or tax return position often requires advice from a competent tax and/or legal advisor familiar with your specific transaction, objectives and the relevant facts. We strongly urge you to involve your tax and/or legal advisor (or to seek such advice) in any significant real estate or business related transaction. © 2018 Asset Preservation, Inc. All rights reserved. HQ 800.282.1031 | NY 866.394.1031 apiexchange.com | info@apiexchange.com Compliments of: Lynne Bagby, CES Division Manager- New England Asset Preservation, Inc. 800-883-1031 | 781-808-1364 -cell lynne@apiexchange.com | www.apiexchange.com
  • 2. RELINQUISHED PROPERTY SALE (PHASE I) Contract: 1. Negotiate and sign the purchase and sale agreement (contract) for the sale of the relinquished property as the seller and/or assignee. 2. If possible, include language in the contract to establish an intent to perform a 1031 exchange and have the buyer agree to an assignment of the contract. (Contact API for the suggested 1031 exchange cooperation language.) Closing: 1. Contact Asset Preservation, Inc. (API), after the purchase and sale agreement has been signed by all parties. The 1031 exchange must be set up prior to the relinquished property closing. 2. Information needed by API: a. Phone number, email and reference number for closing officer/closing attorney; b. Taxpayer’s mailing address, phone number, and email; c. Sales price and approximate debt owed (mortgage payoff amount); d. Legal vesting as reflected on title; e. Copy of the Title Commitment; and, f. Will the taxpayer be providing seller carryback financing (i.e. carrying a note) on the sale of the relinquished property? 3. API will contact the closing officer/closing attorney and forward the Exchange Agreement and necessary 1031 exchange documents. 4. Copies of all documents will be forwarded to the taxpayer via email. 5. The closing officer/closing attorney will obtain all signatures on the Exchange Agreement and all exchange documents. 6. Once all parties have signed and all closing conditions are met, the transaction is closed. 7. Exchange proceeds will be wired by the closing officer/closing attorney to API. Stages of a 1031 Exchange Follow These Simple Steps for a Successful Transaction 1031 Knowledge Asset Preservation, Inc. (API) is a qualified intermediary as defined in the regulations under Internal Revenue Code §1031. Neither API, it’s officers or employees are authorized or permitted under applicable laws to provide tax or legal advice to any client or prospective client of API. The tax related information contained herein or in any other communication that you may have with a representative of API should not be construed as tax or legal advice specific to your situation and should not be relied upon in making any business, legal or tax related decision. A proper evaluation of the benefits and risks associated with a particular transaction or tax return position often requires advice from a competent tax and/or legal advisor familiar with your specific transaction, objectives and the relevant facts. We strongly urge you to involve your tax and/or legal advisor (or to seek such advice) in any significant real estate or business related transaction. © 2018 Asset Preservation, Inc. All rights reserved. HQ 800.282.1031 | NY 866.394.1031 apiexchange.com | info@apiexchange.com Compliments of: Lynne Bagby, CES Division Manager- New England Asset Preservation, Inc. 800-883-1031 | 781-808-1364 -cell lynne@apiexchange.com | www.apiexchange.com
  • 3. REPLACEMENT PROPERTY PURCHASE (PHASE II) Identification: 1. The taxpayer has 45-calendar days from closing on the relinquished property to identify replacement property. a. For a 1031 exchange to be fully tax deferred, a taxpayer must acquire replacement property of equal or greater net sales price and reinvest all of the net proceeds from the relinquished property sale. 2. API will forward the following to the taxpayer: a. Date the relinquished property closed; b. 45th day for the Identification Date requirement; c. 180th day for the exchange period requirement; d. Confirmation of receipt of exchange proceeds; and, e. “Replacement Property Identification Letter” which outlines the specific identification rules 3. Forward the signed “Replacement Property Identification Letter” with the property or properties identified before midnight of the 45th date from the relinquished property sale closing. Contract: 1. Sign the purchase and sale agreement for the purchase of the replacement property as the buyer and/or assignee. 2. If possible, include language in the contract to establish an intent to perform a 1031 exchange and have the seller agree to an assignment of the contract. Closing Stage: 1. Contact API after signing the Purchase Contract. 2. Information needed by API: a. Phone number, email and reference number for closing officer/closing attorney; b. Purchase Price; and, c. Will an earnest money deposit be needed from API account? 3. API will contact the closing officer/closing attorney and prepare the necessary exchange documents and withdrawal authorization. 4. The closing officer/closing attorney will obtain signatures on all necessary exchange documents. 5. After all parties have signed the exchange documents and API receives the withdrawal authorization from the closing agent, the exchange proceeds being held by API will be wired to the closing officer’s/closing attorney’s account. Stages of a 1031 Exchange Follow These Simple Steps for a Successful Transaction 1031 Knowledge Asset Preservation, Inc. (API) is a qualified intermediary as defined in the regulations under Internal Revenue Code §1031. Neither API, it’s officers or employees are authorized or permitted under applicable laws to provide tax or legal advice to any client or prospective client of API. The tax related information contained herein or in any other communication that you may have with a representative of API should not be construed as tax or legal advice specific to your situation and should not be relied upon in making any business, legal or tax related decision. A proper evaluation of the benefits and risks associated with a particular transaction or tax return position often requires advice from a competent tax and/or legal advisor familiar with your specific transaction, objectives and the relevant facts. We strongly urge you to involve your tax and/or legal advisor (or to seek such advice) in any significant real estate or business related transaction. © 2018 Asset Preservation, Inc. All rights reserved. HQ 800.282.1031 | NY 866.394.1031 apiexchange.com | info@apiexchange.com Compliments of: Lynne Bagby, CES Division Manager- New England Asset Preservation, Inc. 800-883-1031 | 781-808-1364 -cell lynne@apiexchange.com | www.apiexchange.com
  • 4. Member: THE API ADVANTAGE™ EXPERIENCE Established in 1990, API has successfully facilitated over 175,000 real property exchanges and is recognized as one of the leading Qualified Intermediary companies in the nation. EXPERTISE API’s Senior Exchange Counselors, attorneys and CPAs are available to discuss exchanges of any complexity — from standard delayed to improvement and reverse exchange transactions. SECURITY Our foremost concern is security of the exchange proceeds, as exemplified by our additional security measures. Highlights of The API Advantage™ are: • Through a “Letter of Assurance,” Stewart Information Services Corporation (NYSE: STC) provides a Third Party Guarantee (a safe harbor under the 1991 Treasury Rules and Regulations) that “assures” the performance of API. • Exchange funds are not commingled with API’s operating accounts. API offers multiple investment options to suit our customer’s needs. In addition, our customers may request that API obtain their notarized signature for the movement of funds - another security feature. • Fidelity bond insurance coverage and Errors and Omissions insurance. TO LEARN MORE, CALL ASSET PRESERVATION, INC. National Headquarters: (800) 282-1031 Eastern Regional Office: (866) 394-1031 (As a “Qualified Intermediary” as defined in the Section 1031 regulations) Asset Preservation, Inc. is not able to provide legal or tax advice. Accordingly, you should review the details of your specific transaction with your own legal or tax advisor. ASSET PRESERVATION, INC. EXPERTS IN THE POWER OF EXCHANGE™ Savvy investors know that Internal Revenue Code (IRC) Section 1031 provides a vehicle for deferring capital gain taxes while disposing of investment property. The United States Treasury Department has validated the services of a “Qualified Intermediary” to complete a tax deferred exchange. Asset Preservation, Inc. (API), a Stewart subsidiary, is a national leader in the 1031 Qualified Intermediary industry. We have a history of protecting investors’ assets through our expertise in specialized services that can defer capital gain taxation indefinitely. At API, we’re committed to providing investors with the highest level of experience, expertise and security of funds in the industry — what we call The API Advantage™. OUR VISION Excelling as the premier §1031 “Qualified Intermediary” company nationally by delivering superb service and the highest levels of proceeds security and value-added solutions from the industry’s foremost experts. Visit www.apiexchange.com Capital Gain Tax Calculation Sign up for §1031 Exchange Updates Open New §1031 Exchange Online 45/180 Day Calendar Useful Tax Links A National IRC §1031 “Qualified Intermediary” www.apiexchange.com info@apiexchange.com National Headquarters (800) 282-1031 (916) 791-5991 Eastern Regional Office (866) 394-1031 (631) 369-3617 ASSET PRESERVATION, INC. THE POWER OF EXCHANGE™ © 2018 Asset Preservation, Inc.
  • 5. “LIKE-KIND” PROPERTY EXCHANGER BUYER DEED DEED SALE relinquished property ASSET PRESERVATION, INC. $ $ SELLER PURCHASE replacement property 0 45 days 180 days IDENTIFICATION PERIOD TOTAL EXCHANGE PERIOD THE DELAYED EXCHANGE PROCESSTHE POWER TO PROTECT, GROW AND DIVERSIFY Thanks to the IRC §1031, a properly structured exchange allows an investor to sell an investment property, and acquire a new property, and potentially defer all capital gain taxes. IRC §1031 (a) (1) states: No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment. THE POWER OF FLEXIBILITY Pursuant to IRC §1031, capital gain deferment requires the exchange of “like-kind” relinquished property for other “like-kind” replacement property. Generally, real property held for investment or real property used in a trade or business can be exchanged for other real proper- ty held for investment or real property used in a trade or business. THE EXCHANGE EQUATION: 100% TAX DEFERRAL To fully defer all capital gain taxes, an exchanger must meet two requirements: 1. Reinvest all exchange proceeds to acquire like-kind property. 2. Acquire like-kind property of equal or greater value. WHAT’S THE FIRST STEP? Always discuss a §1031 tax deferred exchange with your tax and/or legal advisors. Call Asset Preservation for a free consultation, and definitely before closing on the relinquished property. Include language stating the intent to perform a §1031 tax deferred exchange in the Purchase and Sale Agreement: “Buyer is aware that Seller intends to perform an IRC §1031 tax deferred exchange. Seller requests Buyer’s cooperation in such an exchange and agrees to hold Buyer harmless from any and all claims, liabilities, costs or delays in time resulting from such an exchange. Buyer agrees to an assignment of this contract to Asset Preservation, Inc., by the Seller.” EXCHANGE: POWERFUL STRATEGIES THE DELAYED EXCHANGE A delayed exchange is the most common exchange format. It provides investors up to 180 days to acquire replacement property through the use of a Qualified Intermediary to complete a valid delayed exchange. (This process is further explained in the diagram to the right.) THE IMPROVEMENT EXCHANGE Improvement (build-to-suit or con- struction) exchanges allow an investor to use exchange pro- ceeds to either (1) make improvements to a new replacement property or (2) build a new replace- ment property. THE REVERSE EXCHANGE A reverse exchange is the purchase of the replace- ment property prior to closing on the relinquished propertystructuredthroughthe useofanexchangeaccommodation titleholder, otherwise known as an (EAT). SALE OF THE RELINQUISHED PROPERTY Prior to closing the sale of the relinquished property, the Exchanger enters into the Exchange Agreement with API. Pursuant to the Exchange Agreement, an Assignment is executed prior to closing, and Exchanger assigns its rights under the Purchase and Sale Agreement to API. API instructs the closing/escrow officer or closing attorney to directly deed the property from the Exchanger to the Buyer. Proceeds are transferred directly to the Qualified Intermediary, thereby protecting the Exchanger from actual or constructive receipt of funds. Please note that §1031 Regulations mandate restrictions on the Exchanger’s ability to access exchange proceeds at any time. Please consult with API for more details on these restrictions. IDENTIFICATION OF REPLACEMENT PROPERTY The Exchanger must properly identify potential replacement properties within 45 calendar days. API provides the Exchanger with the specific identification requirements. PURCHASE OF THE REPLACEMENT PROPERTY The Exchanger has a total of 180 calendar days from closing of the relinquished property, or their tax filing date (including extensions), whichever is earlier, to acquire “like-kind” replacement properties. Prior to closing on the replacement property, the Exchanger assigns the Purchase and Sale Agreement to the Qualified Intermediary. After the Assignment is executed, the exchange is completed when the Qualified Intermediary purchases the replacement property with the exchange proceeds and transfers it back to the Exchanger by a direct deed from the Seller.