Requirements

• In order for your property to qualify for a built to suit exchange the following must be true:
• Both the Relinquished Property and the Replacement Property must be held either for investment or for productive use in a trade or business. 
• The property must be Like Kind Property. Real property must be exchanged for real property. Personal property must be exchanged for personal property.
• There must be an actual reciprocal transfer of properties - a deed for a deed.

Procedures

Conveyance Of Relinquished Property From Exchangor to Buyer

• The escrow company handling the escrow for the Relinquished Property sends the Accommodator, Downstream Exchange Company, Escrow Instructions and the Preliminary Title Report.
   
• From that information Downstream prepares an 1031 Exchange Agreement and an Amendment to Escrow Instructions - Exchange of Relinquished Property These documents are returned to escrow to obtain the signatures of you, the Exchangor, and the Buyer.

Timing And Identification Requirements

• When the Relinquished Property escrow closes you will receive:
   
  • A letter from Downstream advising you of the date your escrow closed and the amount of funds Downstream received from escrow.
     
  • A calculation of the actual calendar date of the 45th and 180th calendar day from the close of your escrow.  You must identify the property you wish to acquire by the 45th calendar day from the close of your escrow and you must acquire the property you have identified by 180 calendar days of the close of your escrow.  
     
  • A property identification form included with the letter that you must return to Downstream by the 45th calendar day from the close of escrow of your Relinquished Property.
     
• You may identify up to three replacement dental practices (Replacement Property). As an alternative, you may identify any number of practices as long as their aggregate fair market value does not exceed 200 percent of the aggregate fair market value of the practice you relinquished. As a final option, you may identify any number of practices as long as you acquire at least 95 percent of the aggregate fair market value of all the identified replacement dental practices (Replacement Property) before the end of the 180 calendar day period. 
   
• An identification of a practice may be revoked in writing any time during the 45 calendar day period.
   
• While Downstream is holding your funds, you will receive a monthly analysis advising you of the activity on your account.
   
• A final analysis will be sent to you after the close of escrow of your replacement dental practice (Replacement Property).
  
  

Conveyance Of Replacement Property From Seller To Special Purpose Entity

• The Replacement Property that you acquire must be property you intend to hold for investment. This means that you cannot live in the Replacement Property
   
• At your request, we will send a deposit to the Replacement Property escrow when escrow opens. 
   
• The escrow company handling the escrow for the Replacement Property sends the Accommodator, Downstream Exchange Company, Escrow Instructions and the Preliminary Title Report.
   
• From that information Downstream prepares an Amendment to Escrow Instructions - Exchange of Replacement Property These documents are returned to escrow to obtain the signatures of you, the Exchangor, the Special Purpose Entity and the Seller.
   
• The Replacement Property is deeded to a Special Purpose Entity designated and affiliated with Downstream Exchange Company.
   
• The Accommodator uses the proceeds from the exchange to improve the Replacement Property held by the Special Purpose Entity.
   
• A construction lender may be used to fund the improvements made to the Replacement Property.

Conveyance Of Replacement Property From Special Purpose Entity To Exchangor

• The Replacement Property that you acquire must be property you intend to hold for investment. This means that you cannot live in the Replacement Property
   
• At your request, we will send a deposit to the Replacement Property escrow when escrow opens.
   
• The escrow company handling the escrow for the Replacement Property sends the Accommodator, Downstream Exchange Company, Escrow Instructions and the Preliminary Title Report.
   
• From that information Downstream prepares an Amendment to Escrow Instructions - Exchange of Replacement Property These documents are returned to escrow to obtain the signatures of you, the Exchangor, the Special Purpose Entity and the Seller. 
   
• The Replacement Property is deeded to a Special Purpose Entity designated and affiliated with Downstream Exchange Company.
   
• The Accommodator uses the proceeds from the exchange to improve the Replacement Property held by the Special Purpose Entity.
   
• A construction lender may be used to fund the improvements made to the Replacement Property.

Practical Considerations

• You have only 180 calendar days from the close of escrow for the the Special Purpose Entity to acquire the Replacement Property, complete and pay for sufficient improvements to satisfy the investment requirement into the Replacement Property   
   
• You may not include in the exchange value prepaid, but not completed construction materials or services, since they are not considered Like Kind Property property. 
   
• The construction of the improvements on the Replacement Property do not have to be completed to the point that the improvements are  suitable for occupancy.  The Replacement Property  will be valued as of the date it is conveyed to the Exchangor. 
   
• You may incur additional state, county or local transfer taxes when the Replacement Property  is conveyed from the Seller to the Special Purpose Entity. 
   
• Construction lender has to be consulted prior to entry into the exchange to anticipate and resolve any problems the lender may anticipate in making the construction loan. 
   
• You may not improve a property that you already own. 
  

Important Issues To Be Taken Into Consideration

• Generally speaking, to completely defer all capital gain taxes:
   
  • You must use all of the net proceeds from your Relinquished Property in the purchase of yourReplacement Property.
     
  • You must also obtain a mortgage on your Replacement Property equal to, or greater than, the mortgage on your Relinquished Property.
     
  • You can offset the amount of mortgage obtained on theReplacement Propertyby putting the equivalent amount of additional cash into the exchange

  However, certain losses may affect the amount that is necessary to invest in the Replacement Property. You should consult with your tax preparer regarding your potential Recognized Gain. 
   

• In a Like Kind Property Exchange, if the property exchanged is to or from a Related Parties, it must be held for two years. Please e-mail, call or FAX us for a further explanation if you feel this may apply to you.   
   
• It is also important that you do not have actual or Constructive Receiptof the funds during the exchange process. No funds from the transaction should be received by the taxpayer until all Replacement Property has been acquired.
   
• You cannot exchange stock in trade, inventory, property held for sale, stocks, bonds, notes, securities, evidences of indebtness, certificates of trust or beneficial interest in trust or interest in a partnership.
   
• If you exchange California real property for out-of-state real property, California tax law provides for the non recognition of gain on the exchange. This allows you to defer the gain into the basis of the real property received. However, upon the sale of the replacement real property now located outside of California, the portion of the gain attributable to the increase in value of the California real property during the period it was held by you will be income from California sources. This income should be reported as such on a California Form 540 NR.