There are Three Types of 1031 Exchanges.
- Simultaneous Exchange is where the Taxpayer’s Relinquished Property is transferred at the same time as the replacement property is received. With the exception of a direct trade between two property holders, a third party is needed in the transaction to facilitate the acquisition or sale of one of the properties and then completion of the exchange.
- Delayed, Deferred or “Starker Exchange is where the Taxpayer’s Relinquished Property is transferred prior to the time the replacement property is received. This transaction requires use of a third party to sell and buy the properties involved, and to hold the proceeds from the sale of the relinquished property.
- Reverse Exchanges are where the replacement property of the Taxpayer is acquired by a third party for the taxpayer prior to the time a sale has been arranged for the relinquished property. At some point in the transaction, the Replacement Property is simultaneously exchanged for the Relinquished Property, which is sold by the third party.
Who is the third party referred to in these definitions?
The third party is known as a Qualified Intermediary, Facilitator or Accommodator. This entity cannot be related to the Taxpayer as defined in the Internal Revenue Service Code regulations. If these regulations are not met the exchange is at risk.