The settlement side of a 1031 exchange is one of the services we provide across Maryland. When the properties are commercial, our commercial closing work applies to both sides of the exchange.
The settlement side of a 1031
A 1031 exchange, named after Section 1031 of the Internal Revenue Code, lets an investor sell a property and reinvest the proceeds in another while deferring capital gains tax. We are the settlement agent for both closings, not the qualified intermediary or your tax adviser: we close on the exchange deadlines and send the sale proceeds straight to your intermediary. In partnership with BlueLion, we can provide a fully digital 1031 exchange experience through a mobile app at no additional cost to our clients.
A collaborative approach
We understand how important timing and precision are in a 1031 exchange. Maryland First Title works closely with each client’s tax advisors and financial planners for a smooth move from one investment to the next. Our support includes handling the necessary documents and coordinating everyone involved in the transaction. With Maryland First Title, investors can use 1031 exchanges to grow their portfolios while making the most of the tax benefits, making each transaction as efficient as possible.
Who this is for
- Owners of rental homes, apartment buildings, commercial buildings or land held for investment
- Businesses selling property they use in the business
- Investors trading up, combining several properties into one or splitting one into several
- Tax advisors and qualified intermediaries who need a settlement agent that closes on deadline
How it works with Maryland First Title
-
Plan before the sale closes
Talk to your tax advisor and to us before you sign the sale contract. The exchange must be set up before the sale settles; it cannot be added afterward. Request a call back to plan it.
-
Set up the exchange
The sale proceeds must be held by a qualified intermediary, never by you. Through our partner BlueLion, the exchange can be set up and tracked digitally at no additional cost; if you already work with an intermediary, we coordinate with them.
-
Sell the property you are giving up
At settlement the exchange documents are signed and we send the net proceeds directly to the intermediary.
-
Identify replacements within 45 days
You have 45 calendar days from the sale to identify replacement properties in writing. Most investors use the three-property rule: up to three properties of any value.
-
Buy within 180 days
The purchase must close within 180 days of the sale, or by the due date of that year’s tax return (with extensions) if that is sooner. We search and insure the title on the new property and close with funds sent by the intermediary.
-
Report the exchange
Your tax advisor reports the exchange to the IRS on Form 8824 with your return. We provide the settlement statements they need.
What you will need
- The contract for the property you are selling, and later the contract for the replacement
- The exchange agreement and related documents from the intermediary
- Your tax advisor’s contact details
- Your written identification of replacement properties, within 45 days
- Payoff details for any loans on the property you are selling
- Company documents if a company owns the property, and photo ID for everyone signing
How long it takes
The clock starts on the day the sale settles: 45 days to identify replacement property and 180 days to close on it. Both periods run at the same time, count weekends and holidays, and do not stop because a closing is delayed.
Start the replacement search early, and send us each replacement contract as soon as it is signed so the title work can begin right away.
Maryland points to know
Transfer and recordation taxes still apply
A 1031 exchange defers federal income tax. It does not change Maryland’s transfer and recordation taxes, which are due on both the sale and the purchase as in any other deal.
Nonresident sellers
If you live outside Maryland, Maryland requires tax to be withheld from your sale proceeds at settlement (8.75% for individuals, 8.25% for companies) unless an exemption applies. Ask us early whether one applies to your exchange. How nonresident withholding works.
Take title in the same name
Generally, the taxpayer that sells must be the one that buys. If a company sold the property, the same company should take title to the replacement; we check the names on both deeds before closing.
Title insurance on the replacement
As on any Maryland purchase, the owner’s policy on the replacement property is optional, and its premium is paid once, at settlement. Your lender, if you have one, will require a loan policy.
“He made what can be a long, arduous process, very quick and painless.”
“Attorney Emile Henault is extremely professional and well organized. He made what can be a long, arduous process, very quick and painless. Kim Wade is also extremely knowledgeable and helpful. Highly recommend.”