A Simultaneous Exchange occurs when the taxpayer (the ‘Exchanger’) and another property owner would like to trade, or swap, properties.  In reality, these two-party exchanges rarely occur.  Most frequently, the taxpayer will sell his or her ‘Relinquished’ property to one person, then will acquire the ‘Replacement’ property from an unrelated third party.

Occasionally, however, two owners will exchange qualifying, like-kind properties with one another.  While it is not required to engage the services of a ‘Qualified Intermediary’ when engaging in a Simultaneous Exchange, taxpayers may find it helpful to do so.

When two taxpayers exchange properties, the properties generally are not of equal value.  The result is that one party will receive cash along with the Replacement Property to account for the difference in value.  This cash may qualify as taxable ‘Boot’ for the party who receives it.  Many taxpayers will decide to invest this cash to acquire a second Replacement Property to avoid Boot, and this action requires the services of a Qualified Intermediary. 

A second reason to engage the services of a Qualified Intermediary in a Simultaneous Exchange is that the use of a Qualified Intermediary is one of the designated ‘Safe Harbors’ for a Forward Exchange.

The steps for closing a Simultaneous Exchange using the services of a Qualified Intermediary are as follows:
 

1.  The Purchase and Sale Agreements are negotiated for both the Relinquished and Replacement Properties. 

 

2.  The Exchanger executes an Exchange Agreement with Beacon Exchange Company pursuant to which he or she agrees to exchange the Relinquished property for the Replacement property.  The rights under both the sale contract and the purchase contract are assigned to Beacon Exchange Company as Qualified Intermediary.

 

3.  Beacon Exchange Company will close on both properties.

 

4.  The Exchanger executes a direct deed transferring the Relinquished property to the second property owner and receives back a direct deed for the Replacement property.

 

5.  If applicable, the cash to equalize the property values will be held by Beacon Exchange Company until these funds are invested in the acquisition of the second Replacement Property.

We invite you to call or email us and review these rules if you are contemplating a Simultaneous Exchange.