Start To Exchange

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How Do You Start the Process?

We will need two things in order to prepare the legal documents for your like-kind-exchange closing:

1. A Purchase Sales Agreement (you can email or fax this to us).
2. A completed one page Application Data Form (provides us with the name of seller, tax ID number of exchanger, estimated sale price, property description, close date, exchange proceeds, key contacts, and general closing information)

What to expect? The Exchange process:

1) Before you close on your sale, we need to be involved in the process as the exchange accomodator (Qualified Intermediary). Some definition of terms:

  • Old Property: the property(ies) you are selling (sometimes called the “relinquished property”).
  • New Property: the property(ies) you want to buy (sometimes called the “replacement property”).
  • Closing agent: the person or entity that is doing your closing, such as: attorney, escrow, or title company. Their job is to prepare the documents transferring title to the property from the seller to the buyer.
  • Client/Exchanger/Taxpayer: the person who is our client; the one doing the exchange.
  • Accommodator/Qualified Intermediary: (or “QI”) the firm handling your 1031 exchange transaction (i.e., Petroleum Strategies Inc.).

2) Upon receiving the purchase-sales-contract, and title information, we start preparing the exchange documents that are required by the IRS:

  • Our documents are sent to you and/or the closing agent 7 to 10 days before closing.
  • Our documents usually contain:
    Privacy Notice: Required by the “Gramm-Leach-Bailey Act”, this document assures you that your information with us is confidential and secure – and that we don’t share it with any one.
    Assignment: Transfers to us the right to act on your behalf in the exchange of the property.
    Notice of Assignment: Notifies the Buyer of your Old Property that you are doing a 1031 exchange. The Buyer does not need to sign this document; the closing agent is responsible for giving the Buyer a copy of this notice.
    Exchange Agreement: This is the contract between you and us as your Qualified Intermediary. It is required by the IRS, and it defines the exchange terms and time frames.
    Instructions for the closing agent: This letter gives the closing agent detailed instructions about preparing their documents for the closing, and how to handle each of our documents. It also includes our wire instructions so that the funds can be wired to your account.

3) Settlement Statement for the Sale (sometimes on a HUD-1 form):

  • Unless you are taking proceeds from the closing and will pay tax on them, the settlement statement will reflect that no money is coming to you. Instead, the sale proceeds will be shown as “Exchange Proceeds” on the settlement statement and sent to us by the closing agent.
  • NOTE: The day you close starts your 45 Day Identification Period (see “6 Rules for Structuring 1031 Exchanges”). We will notify you in writing of your critical 45 and 180 day dates.
  • Our Exchange Fee will be shown on your settlement statement and can be paid out of your sale proceeds.

4) Secure Funds: Your exchange proceeds are wired to your segregated, FDIC-insured account that tracks your tax ID number, and are never co-mingled with any other assets.

  • We usually are not present at the closing, but can be available by request, and are always available by phone.
  • When it’s time for your closing for replacement purchase, we wire your exchange proceeds to the closing agent. If the date for the closing for your sale is close to the date for the closing of your purchase, then we may do a ‘direct closing’: your proceeds will instead be wired from the sale closer to your purchase closer. This will not invalidate your exchange and is acceptable if the time frame is usually no more than three business days.

5) If you need to have earnest money or deposit money for your New Property, then let us know and we’ll fax or email to you an Earnest Money Request Form: fill it out and return it; we then wire the money (or send a check) to the purchasing closer (not to you – remember, you cannot touch your money or your exchange is disallowed). Once your sale closes that also starts your 180-day Exchange Period (see below “6 Rules for Structuring 1031 Exchanges”)

  • Once you’ve identified and signed a contract for the purchase of a New Property, call us, and send/fax to us the real estate contract. And once again, if you can tell us who the closing agent is and their phone number – then we’ll take it from there!
  • We will prepare all the documents for the second leg of the exchange, or your purchase. They usually are:
    Assignment: Transfers to us the right to purchase the New Property on your behalf to complete the exchange.
    Notice of Assignment: Notifies the Seller of the New Property that you are doing a 1031 exchange. The Seller does not need to sign this document; the closing agent is responsible for giving the Seller a copy of this document.
    Instructions to the closer: This letter gives the closing agent detailed instructions about preparing their documents for the closing, and how to handle each of our documents. It also includes a request for wire instructions so that your exchange funds are wired to the closing.

6) Settlement Statement for the Purchase (also sometimes on a HUD-1 form):

The settlement statement will list us as the Buyer and you as the Exchanger.

  • The funds from your exchange account will be transferred from us to the closing agent (usually by wire) and will show in the body of the settlement statement as Exchange Proceeds. The balance of funds necessary to purchase the property will show at the bottom of the Purchaser (sometimes call “Borrower”) column as “Balance due from Buyer”. You need to arrange with the settlement agent to have this amount for the closing in the form of a wire transfer or as a cashier’s check.
  • We will sign the settlement statement as the Buyer, and you will sign as the Exchanger.
  • Once you’ve closed on your purchase(s) your exchange is completed. Congratulations! At the end of the calendar year we can mail you your copy of 8824Tax Manual– a unique package that includes everything you’ll need when filing your tax return and reporting your exchange – saving you or your accountant hours of time.

Questions? Contact:

Lauri Keller
432.218.4638 (direct)

Petroleum Strategies, Inc. does not give tax or legal advice. The information contained herein should not be relied upon as a substitute for tax or legal advice obtained from a competent tax and/or legal advisor.

1031 Exchange Data Form

    Signed Form W-9:

    Will the 1031 exchange be set up for all or a portion of the proceeds?

    AllA Portion Of

    Do you plan to purchase replacement property within 2 days of your sale?


    Type of Agreement


    Copy of Agreement if available

    NOTE: If Relinquished Property is being sold at auction, attach a copy of the agreement with the auction agent.
    (e.g., Oil & Gas Asset Clearinghouse, Put "Clearinghouse" or "EnergyNet" as Buyer