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1031 Exchange Professionals
There are a number of different resources that the investor needs to successfully complete a 1031 exchange. The first step to a successful stress free 1031 exchange is developing investment objectives adjusted for risk. Following that, the investor needs to assemble a team of professionals to aid and advise in the 1031 Exchange before launching the sale of the property they are going to relinquish.
Remember, a well planned 1031 exchange is a thing of beauty, while one that is unplanned invites financial and emotional hardship.
The key players in a 1031 exchange are:
The investor should make sure their tax accountant has experience doing 1031 exchanges or find one that does. The tax accountant is a vital player in providing the investor with information as to the tax consequences of a 1031 exchange and should be able to advise the investor on the desirability of a 1031 exchange for both financial and personal reasons.
A Qualified Intermediary or QI
The IRS requires that the owner (the exchanger) of the property to be relinquished not be permitted to have control of the proceeds from the sale of their property (aka "constructive receipt"). To comply with this requirement it is necessary to contract a Qualified Intermediary (QI) or a similarly qualified party, to hold the proceeds and perform the following tasks:
Acquires the relinquished property from the taxpayer & transfers the relinquished property to the new buyer;
Acquires the replacement property and transfers the replacement property to the taxpayer.
There are many good QIs whose services are competitively priced. At present QIs are not licensed or regulated in most states so the investor needs to exercise care in selecting the Qualified Intermediary they will be using. Some things to consider are the experience of the Qualified Intermediary in doing the kind of exchange the investor is contemplating, the adequacy of a bond to protect the investor's money and if the investor's money will be held in a separate account, not commingled with other funds.
A number of large banks and title companies provide Qualified Intermediary services.
Real Estate Legal Counsel
The investor should make sure their legal counsel has experience doing 1031 exchanges or find one that does, in the state(s) the relinquished and replacement property(s) are located. Legal counsel is used to review contracts to make sure the investor's interests are properly served.
Real Estate and 1031 Exchange Strategy Experts
To successfully complete a 1031 exchange it is vital that the investor have a clear road map as to both the types of investments they are going into and how to traverse the various stages of a 1031 exchange.
Finding Replacement Property
The investor needs to be or become familiar with the various options available and develop a realistic set of expectations. The time to do this is before his/her 45-day identification period starts.
Key characteristics of a good replacement property are certainty of close (the investor cannot afford to have the purchase of their replacement property unravel after the 45 day identification period ends) and transparency (the investor needs to be able to quickly determine the risk and potential reward in any property without going through prolonged due diligence). Also vital to a successful exchange is a consistent, dependable flow of available investment opportunities with a range of risk reward opportunities appropriate for the investor's needs.
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