Getting a 1031 exchange across the finish line in Madison County takes careful timing and clean handoffs. You are selling and buying in a tight window, while making sure no one accidentally gives you access to the proceeds. With a clear plan, your closings can be smooth and fully aligned with IRS rules.
1031 Exchange Closing: Why Logistics Matter
A 1031 exchange has two moving parts: the sale of your relinquished property and the purchase of your replacement property. The logistics matter because missed steps can disqualify the exchange. Written identification must happen on time, proceeds must be controlled by a qualified intermediary, and everyone needs the same instructions. The IRS measures your timeline from the date you transfer the relinquished property, so disciplined coordination avoids scramble and costly mistakes see IRS Form 8824 instructions.
1031 Closing Flow and Key Players
Contract-to-close sequence overview
Here is the high-level order of events most investors follow:
- Prep phase: choose a qualified intermediary, brief your agent, and alert your title company that this will be a 1031.
- List and accept an offer on your relinquished property. Add exchange assignment and cooperation language to the contract.
- Before closing: execute your exchange agreement with the qualified intermediary and deliver wiring instructions to title so sale proceeds go to the intermediary and not to you IRS safe harbor guidance references qualified intermediary use.
- Close the relinquished sale. Funds move directly to the intermediary.
- Within the identification window, deliver written identification of one or more replacement properties using an allowed method identification rules summarized in IRS Publication 544.
- Negotiate and go under contract on the replacement property. Share the exchange assignment and closing instructions with the new title company and your lender.
- Close on the replacement property by the required deadline. The intermediary wires funds to the closing agent. You report the exchange on your tax return using Form 8824 per IRS instructions.
Who does what: QI, title/escrow, lender, agent, CPA
- Qualified Intermediary (QI): Holds your proceeds, prepares exchange documents, receives your identification notice, and wires funds to the replacement closing. The QI cannot be you or a disqualified person like your agent, attorney, or accountant from the last two years see Treasury Reg. §1.1031(k)-1 guidance.
- Title/Escrow: Follows your exchange instructions, verifies withholding items, records deeds, and coordinates wires. For foreign sellers, title helps manage FIRPTA forms or certifications at closing FIRPTA overview.
- Lender: Underwrites the replacement property. Replacement debt levels affect whether you have any taxable mortgage boot. Make sure loan terms are set early so you can match or exceed debt as needed to avoid recognition see IRS Form 8824 instructions on boot.
- Agent/Broker: Structures exchange-friendly contracts, keeps both closing teams aligned, and helps manage timelines and inspections.
- CPA/Tax Advisor: Confirms exchange eligibility, models boot risk, and prepares your return reporting Form 8824 instructions.
Communication cadence and checklists
- Weekly updates with your agent, QI, title, lender, and CPA until both legs are closed.
- One shared milestone list covering: executed QI agreement, sale closing date, identification due date, replacement contract, appraisal return, loan clear-to-close, and replacement closing date.
- Central file with: executed exchange agreement, identification letter and proof of delivery, both settlement statements, wiring authorizations, and any withholding certificates.
Pre-Contract Setup for Smooth Exchanges
Select a qualified intermediary early
Engage your QI before you go under contract so they can prepare the exchange agreement and wiring instructions. Using a QI is the standard safe harbor that keeps you from receiving the funds directly, which would otherwise disqualify the exchange IRS safe harbor rationale. Confirm the QI is not a disqualified person and ask about how they safeguard client funds Treasury Reg. reference.
Exchange-friendly contract language
Your contracts should allow assignment to your QI and include cooperation language so title will accept QI instructions. You do not need complex clauses, but all parties must know this is a 1031, and settlement should reference the exchange to guide disbursements.
Financing and appraisal readiness
If you need a loan on the replacement property, start pre-approval now. Share your target closing window with the lender. Ask for early appraisal ordering and underwriting milestones so your loan is ready when the intermediary is set to fund.
Selling the Relinquished Property Steps
Earnest money and escrow handling
Earnest money on the sale contract typically stays with the closing agent as usual. Your focus is on final proceeds. Make sure the settlement statement shows proceeds payable to your QI or a qualified escrow per the exchange agreement IRS guidance.
Assignment notices and settlement instructions
- Execute the exchange agreement with your QI before closing.
- Provide title with the QI’s wiring instructions and reference your exchange in the closing file so no funds are disbursed to you by mistake.
- If nonresident withholding might apply for Alabama, work with title on exemption forms when the exchange will fully defer state recognition Alabama nonresident withholding guidance.
Day-of-closing tasks and signings
- Verify the deed and closing documents are correct and the settlement statement routes sale proceeds to the QI.
- Title confirms any withholding items, including FIRPTA if you are a foreign seller, or documents the applicable exception or certificate FIRPTA overview.
- After recording, request the final signed settlement statement for your records.
Buying the Replacement Property Steps
Identification strategy and deadlines
Plan your identification strategy early. The IRS allows several methods for identifying potential replacement properties within the required window. Your identification must be in writing and properly delivered to the right party. If you take title to the replacement before the identification period ends, formal identification is satisfied by the acquisition itself IRS Publication 544.
Coordinating back-to-back vs. separate closings
- Same-day closings: Useful when schedules align. You sell in the morning and buy in the afternoon. The QI receives funds from the sale and wires to the buy. Build in buffer time for bank wires and recording.
- Staggered closings: Common if the replacement needs inspections, repairs, or loan underwriting. Keep the identification and acquisition windows on your calendar and have your QI ready to release funds when title requests them.
Contingencies, inspections, and repairs
Use clean contingency timelines so you can clear due diligence before your acquisition deadline. Repairs can be handled as seller credits on the replacement settlement statement. Avoid receiving credits outside closing that could be treated as cash to you. Align any lender-required repairs with your schedule so closing stays on track.
Funds, Prorations, and Closing Documents
Wiring and fraud prevention
- Confirm wiring instructions directly with title and your QI using verified phone numbers.
- Match beneficiary names and account numbers to the exchange agreement and closing statement.
- For the sale, all net proceeds must go to the QI. For the purchase, funds should arrive from the QI to the closing agent, not from you personally unless you are adding cash to avoid mortgage boot IRS Form 8824 instructions on boot.
Prorations: rent, deposits, taxes, HOA
Expect the following on your settlement statements:
- Rent and deposits: If the property is tenant-occupied, prorate current-month rent and transfer deposits to the buyer. On your replacement purchase, ensure deposits are transferred to you and reflected correctly.
- Property taxes: Prorated as of the closing date in both legs.
- HOA dues: Prorated monthly or quarterly. Payoffs and transfer fees appear as line items.
- Utilities: Final readings and deposits handled per local practice in the Huntsville–Madison area. Coordinate cutover to avoid service gaps for tenants.
Post-closing records and tax filings
Keep a complete exchange file: exchange agreement, identification letter with proof of delivery, both settlement statements, deeds, loan docs, and QI wire confirmations. Your CPA will use these to complete the exchange reporting on your federal return with Form 8824 IRS instructions. If you had any debt relief or cash received, reconcile potential recognition. Maintain copies for state filings, including any Alabama withholding exemptions used state guidance.
Madison County Closing Logistics You Should Know
- Recording office: The Madison County Probate Office records deeds and mortgages at the courthouse in Huntsville and supports e-recording through approved vendors. Verify hours and e-record processes with your title company ahead of closing county recording reference.
- RT-1 form: The Alabama Real Estate Sales Validation Form (RT-1) must accompany deeds unless the deed includes all required data. Your closing package will typically include this form in Madison County county guidance.
- Recording fees and taxes: Budget for recording fees, deed tax, and mortgage tax consistent with county schedules. Your title company will calculate based on price and loan amount fee schedule overview.
- Alabama nonresident withholding: If you are a nonresident seller, Alabama may require buyer withholding. Fully nonrecognized exchanges are generally exempt. If any gain is recognized, withholding can apply to that portion. Your closing team will collect or document exemptions on state forms at closing state guidance.
- FIRPTA: For foreign sellers, federal withholding may apply unless a nonrecognition exception or a withholding certificate is obtained. This requires early coordination among the QI, title, and tax counsel FIRPTA basics.
Practical Checklists for Both Closings
Pre-closing on the sale
- QI engaged and exchange agreement executed before sale closing IRS instructions
- Settlement instructions direct sale proceeds to the QI, not to you
- Title has QI contact and wire details
- If applicable: Alabama nonresident withholding exemption documents prepared state guidance
Day-of-sale closing
- Verify settlement statement routes net proceeds to the QI
- Ensure deed, RT-1, and recording fees are correct for Madison County county reference
- Confirm any FIRPTA or state withholding filings or exemptions are documented FIRPTA basics
Post-sale period
- Deliver written identification within the allowed window using an IRS-approved method identification methods in Pub. 544
- Schedule inspections, appraisal, and loan milestones for the replacement purchase
Replacement closing
- Title receives funds from the QI and applies any additional cash you bring
- Check prorations and credits for rents, deposits, taxes, and HOA
- Collect final signed settlement statement and deed
Start Your Exchange With Local Support
If you want a steady hand coordinating your 1031 in Harvest or the greater Madison area, our team can help you structure exchange-friendly contracts, keep timelines tight, and connect you with reliable QIs, title officers, and CPAs. For disciplined, end-to-end support from listing through funded replacement, partner with Stallworth Real Estate, LLC. Let’s align your exchange with your cash flow goals and your long-term plan.
FAQs
What is the biggest 1031 mistake at closing?
- Allowing proceeds to touch your account. All sale proceeds must go to a qualified intermediary under a written exchange agreement to avoid constructive receipt IRS instructions.
Who should receive my identification notice?
- Deliver written identification to the party obligated to transfer the replacement property or another party involved in the exchange as permitted. Keep proof of delivery within the window IRS Pub. 544.
Can my attorney or agent act as my qualified intermediary?
- Not if they have acted for you in certain roles within the past two years. These are disqualified persons under the regulation Treasury Reg. reference.
How do debt levels affect tax deferral?
- If your replacement debt is lower than what you paid off on the sale, the shortfall can create taxable mortgage boot unless you add cash to offset it Form 8824 instructions.
Do I owe Alabama withholding as a nonresident doing a 1031?
- Fully nonrecognized exchanges are generally exempt. Coordinate exemption forms with title. If any gain is recognized, withholding can apply to that portion Alabama guidance.
What county paperwork is unique to Madison County?
- The RT-1 Sales Validation form typically accompanies deeds, and county-specific recording fees, deed tax, and mortgage tax apply. Title will prepare and file these for you county reference.
How do FIRPTA rules interact with a 1031?
- A like-kind exchange can qualify for FIRPTA nonrecognition in some cases, but only with proper notice or a withholding certificate. Coordinate early with title, your QI, and tax counsel FIRPTA overview.
