A Section 1031 tax deferred exchange, named for the IRS Section it refers to (can also be called a Starker Exchange, Like-Kind exchange or a Tax Free Exchange), permits an exemption to the real estate capital gains tax. If you sell your investment real estate or a business, replace it with a different business or investment property, and complete an exchange, you can postpone payment of the capital gains tax generally necessary on these sales. You can bypass capital gains tax as well on rental property capital gains tax with the 1031 tax exchange.

- To perform a 1031 Exchange, one must use a qualified intermediary. The exchanger must transfer right, title & interest to the qualified intermediary the moment the transaction is closed in escrow.

- All documents have to be prepared & signed before the escrow closing.
- After the closing of sale in escrow, the qualified intermediary is required to place all funds into an account of high interest.
- At this point, the exchanger has 45 days to identify a suitable replacement property. Identification of replacement property is satisfied by mutual acceptance & execution of a purchase & sale agreement between a seller & the exchanger.
- The qualified intermediary forwards all funds including the accrued interest to the escrow at closing to complete the transaction.

A Simultaneous Exchange is an exchange in which both the closing of the relinquished property and the replacement property occur on the same day, generally right after each other. No time takes place in between the transaction. This type of exchange is covered by the Safe Harbor Regulations.

A Delayed Exchange is an exchange where the replacement property is closed on a different date than the closing of the relinquished property. This type of exchange is can also be called a "Starker Exchange" after the well known Supreme Court case. There are strict time frames set down by the Code and Regulations. The exchange must be completed during this time. They are the 45-Day Clock and the 180-Day Clock. Delayed exchanges are also covered by the Safe Harbor Regulations.

A Reverse Exchange is an exchange in which the replacement property is purchased and closed on before the relinquished property is sold. The IRS has issued new safe-harbor guidance on Reverse Exchanges

The role of the Qualified Intermediary is necessary to completing a successful 1031 exchange. The Qualified Intermediary holds the buyer and seller of property together into the form of a 1031 Exchange.

In order to take full advantage of the qualified intermediary "safe harbor", a written agreement must be made between the taxpayer and intermediary. It is necessary to expressly note the limiting of the taxpayer's rights to receive, pledge, borrow or otherwise obtain any benefits of the money or property held by the intermediary.

Exchange Intermediary facilitates the 1031 deferred tax exchange by preparing all the necessary documents for the transaction.

There are no licensing requirements for Intermediaries. They need merely be not an unqualified person as defined by the Internal Revenue Code. Attorneys, realtors and accountants who have served taxpayers in their professional capacities over the course of the past two years are disqualified from serving as an Intermediary in an exchange.