Fact: The manufacturer did not have any loses to offset the capital gain from the sale of the relinquished property. Therefore, the manufacturer decided to defer the capital gain from the sale of the relinquished property into the purchase of the replacement property under IRC Section 1031.

Solution: The company entered into an exchange agreement with a Qualified Intermediary (QI) to facilitate an exchange of the two properties under IRC Section 1031. The company executed a purchase and sale agreement with the buyer of the relinquished property, and subsequently closed on the sale of the relinquished property beginning the exchange. The net proceeds from the sale were deposited into a qualified escrow account to be used solely for the purchase of qualifying like-kind replacement property within 180 days. The company then identified the replacement property in writing to the Qualified Intermediary within 45 days as required under IRC Section 1031. The company then executed a purchase and sale agreement with the seller of the replacement property, and subsequently closed on the purchase of the replacement property to complete the exchange. The proceeds held in the qualified escrow were released and used to purchase the replacement property, and a third-party lender provided the additional funding needed to purchase the replacement property. The Qualified Intermediary provided the company with all of the documentation and transaction mechanics required under IRC Section 1031 and the Company was able to successfully completes a tax-free exchange.