A tax-deferred exchange is giving up real property currently held for business or investment and subsequently exchanging for replacement property also to be held for business or investment use.
This is sometimes called a forward exchange. The exchanger is giving up property and exchanging forward into owning replacement property.
The 1991 Treasury Regulations under Section 1.1031 provide detailed guidance on how to structure a tax-deferred exchange, and defines a qualified intermediary safe harbor to act as an intermediary between relinquishing property and receiving replacement property. Realty Exchange Corporation is a qualified intermediary.
Using the qualified intermediary safe harbor in a tax-deferred exchange requires an exchange agreement with a qualified intermediary.
To qualify for tax-deferral, the transaction must be structured as an exchange of properties, as distinguished from a transfer of property for money followed by a re-investment in replacement property.
In a forward delayed exchange, the taxpayer transfers relinquished property prior to receiving replacement property.