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REQUIREMENTS AND PROCEDURES

1031 TAX DEFERRED EXCHANGE

In order for your property to qualify for a tax deferred exchange the following must be true:

1.Both the relinquished property and the replacement property must be held either for investment or for productive use in a trade or business.

2.The property must be like kind. Real property must be exchanged for real property. Personal property must be exchanged for personal property.

3.There must be an actual reciprocal transfer of properties - a deed for a deed.

The escrow company handling the escrow for the relinquished property sends the accommodator Escrow Instructions and the Preliminary Title Report. From that information the accommodator prepares an Exchange Agreement and an Amendment to Escrow Instructions - Exchange of Relinquished Property. These documents are returned to escrow to obtain the signatures of you, the Exchangor, and the Buyer.

When the relinquished property escrow closes you should receive a letter from the accommodator advising you of the date your escrow closed and the amount of funds the accommodator received from escrow, as well as the calendar date of the 45th and 180th day from the close of your escrow. You should also receive a property identification form with the letter which you must return to the accommodator by the 45th day from the close of escrow of your relinquished property.

You may identify up to three replacement properties. As an alternative, you may identify any number of properties as long as their aggregate fair market value does not exceed 200 percent of the aggregate fair market value of the property you relinquished. As a final option, you may identify any number of properties as long as you acquire at least 95 percent of the aggregate fair market value of all the identified replacement properties before the end of the 180 day period.

An identification of a property may be revoked in writing any time during the 45 day period.

While the accommodator is holding your funds, you should receive a monthly analysis advising you of the activity on your account. A final analysis should be sent to you after the close of escrow of your replacement property.

The replacement property that you acquire must be property you intend to hold for investment. This means that you cannot live in the replacement property.

At your request, the accommodation should send a deposit to the replacement property escrow when escrow opens. The process of the accommodator obtaining Escrow Instructions and the Preliminary Title Report is repeated. The accommodator then produces the Amendment to Escrow - Conveyance of Replacement Property and sends it to escrow to obtain the signatures of you, the Exchangor, and the Seller.

Escrow on the replacement property must close no later than 180 days after the close of escrow of the relinquished property. If a tax return is due during the 180 day period, an extension of time to file the return must be obtained.

Generally speaking, to completely defer all capital gain taxes, you must use all of the net proceeds from your relinquished property in the purchase of your replacement property. You must also obtain a mortgage on your replacement property equal to, or greater than, the mortgage on your relinquished property. However, certain losses may affect the amount that is necessary to invest in the replacement property. You should consult with your tax preparer regarding your potential recognized gain.

In a like kind exchange, if the property exchanged is to or from a related party, it must be held for two years.

It is also important that you do not have actual or "constructive receipt" of the funds during the exchange process. No funds from the transaction should be received by the taxpayer until all replacement property has been acquired.

If you exchange California real property for out-of-state real property, California tax law provides for the non recognition of gain on the exchange. This allows you to defer the gain into the basis of the real property received. However, upon the sale of the replacement real property now located outside of California, the portion of the gain attributable to the increase in value of the California real property during the period it was held by you will be income from California sources. This income should be reported as such on a California Form 540 NR.

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