At its simplest form an “exchange” is a reciprocal trade. You give Mr. Smith ABC property, and Mr. Smith gives you a XYZ property in return. The power of an IRC Section 1031 exchange would be extremely limited if all exchanges required taxpayers to not only find someone who wants their property, but also has property the taxpayer would like to take in trade.
Fortunately the world of modern 1031-exchanges is no where near that limiting. Section 1031 still requires an “exchange”, meaning a reciprocal trade, but the Treasury Regulations now provide taxpayers with an avenue for creating a trade by using a “Qualified Intermediary”. NExT1031 provides qualified intermediary services.
By using a qualified intermediary, often called a “QI”, a taxpayer can sell Relinquished Property to Ms. Jones and purchase Replacement Property from Dr. Brown. The QI, using documentation of (1) an Exchange Agreement, and (2) assignments of purchase and sale agreements, creates the element of a reciprocal trade.
There are strict rules and guidelines on how to navigate a delayed exchange. This page has a very simplistic explanation of a delayed exchange, so it is not intended to provide a step-by-step or a fully exhaustive explanation. For a deeper level of detail you will want to talk with Dana or visit our Education Materials page.