1031 exchanges in Utah: how title and escrow keep the exchange alive

A 1031 exchange is a tax strategy, but it is executed at the closing table. The intermediary holds the money and the title company closes the deals. If either one gets a detail wrong, the exchange can fail. Here is how the pieces fit in a Utah exchange.

The rules in one paragraph

Under Section 1031 of the Internal Revenue Code, an owner who sells real property held for investment or business use can defer capital gains tax by acquiring like-kind replacement real property. Like-kind is broad for real estate: land for an apartment building qualifies. The seller must identify replacement property in writing within 45 days of closing the sale and must close on the replacement within 180 days, or by the tax return due date if sooner. The seller must not receive the proceeds; a qualified intermediary holds them. To defer all of the gain, the replacement must be of equal or greater value and equity, and the debt replaced or offset with cash.

Who does what

• The taxpayer (exchanger) decides to exchange, hires the QI before closing, identifies replacements, and buys within the deadlines.
• The qualified intermediary prepares the exchange agreement and assignments, receives the proceeds from the first closing, and wires them into the second.
• The title and escrow company closes both transactions, applies the QI's assignment language to the settlement statements, wires proceeds to the QI rather than the seller, and coordinates timing so the replacement closing lands inside the window.
• The CPA or tax advisor confirms the property qualifies and reports the exchange on Form 8824.

What OnRecord does on the relinquished property

The exchange must be in place before this closing. When the order opens, tell your escrow officer it is an exchange and give us the QI's contact. We add the exchange assignment to the closing documents, show the QI as the recipient of net proceeds on the settlement statement, and wire the funds to the QI's exchange account after recording, verified by phone like every wire. The 45- and 180-day clocks start the day this deed records.

What OnRecord does on the replacement property

The QI assigns the purchase contract, and the exchange funds come from the QI's account to our escrow. The deed is drafted to vest title in the exchanger, matching the entity that sold the relinquished property. We track the 180-day deadline and flag any lender or seller delay that threatens it. If the exchanger is buying more than one replacement, we coordinate the closings so the funds and dates all work.

Utah-specific points

• Entities. Many Utah investors hold property in LLCs or trusts. The same taxpayer must sell and buy, so entity changes between legs need advance planning with your advisor.
• Recording. Deeds record with the county recorder; both closings can be e-recorded, which makes hitting a tight day-180 date easier.
• Seller-financed replacements. Common in Utah investor deals and workable in an exchange, but the note has to be structured so the exchanger does not receive boot. Talk to the QI and CPA first.
• Construction and improvement exchanges. Buying land and building with exchange funds is possible through an improvement exchange with an accommodation titleholder. Our construction escrow team has closed them.

Common ways exchanges fail

1. Calling the QI after the sale has closed.
2. Missing day 45 because identification was emailed to the agent instead of delivered to the QI.
3. Taking cash or debt relief at closing, creating taxable boot.
4. Changing the buying entity between legs.
5. A replacement closing that slips past day 180 because of a lender condition nobody escalated.

The title company cannot fix the first four after the fact, but it can catch all five early. Tell us it is an exchange on day one.

Running an exchange in Utah? Open the file with us or call 385-464-2060 and ask for a commercial escrow officer.