Monthly Archives: March 2017

Top 5 Tips For Section 1031 Property Exchange

Top 5 Tips For Section 1031 Property Exchange

The introduction of Section 1031 was a historic move for the investors. It gave the investors a power to defer the taxes associated with capital gains.

Here we present some tips to ensure that process is executed smoothly.

  1. Purchase sufficient replacement property to defer all of the tax

Buy replacement property that is equal to or more in value than the property being sold. For example, if you are selling a property for two million dollars, you must get a property worth at least two million dollars, otherwise, you have to pay some taxes. Make sure to invest all of the net equity from the sale for buying the property.

  1. Use DST investments

Do you know that you can use Delaware Statutory Trusts (DSTs) as replacement properties in 1031 exchange? Apart from helping you defer the taxes, they also allow you to diversify the investment portfolio. Well, the benefits related to these DST investments are multiple, without any major risks.

  1. Choose a QI you don’t know

A good idea would be to ask your real estate agent or CPA for recommendations. But, you can’t choose someone who has acted as your accountant, real estate broker/agent, employee, attorney, or investment banker. A thorough research is necessary to find someone trustworthy. Make sure the intermediary is financially sound and possesses a good reputation.

  1. Follow 45-day rule

After closing on the property, you get 45 days for identifying the potential properties. It is advisable to finalize the property before this deadline to ensure that you don’t have to pay more than the market rates.

  1. Identify three properties

While searching the replacement properties, make sure you identify three properties. This gives you a chance to choose one, two, or three out of these options.

If you are looking for DST investments for 1031 exchange, contact us. We will also guide you through the whole exchange process.

Click here to know more.

Role of A Qualified Intermediary in 1031 Exchange Process

Role of A Qualified Intermediary in 1031 Exchange Process

During the 1031 tax deferred exchange process, intermediary holds your funds until they are used for acquiring replacement property. You must make sure that the funds are held safely. It is essential to check that intermediary must be reputable and financially strong.

Some major roles of a QI include:

  • Preparation of documents related to replacement property and relinquished property
  • Coordination with the exchanger/seller and any adviser
  • Holding the fund for the period of 45 days after selling the relinquished property
  • Acquisition of replacement property in the name of QI and then conveying title to the exchanger/seller via deed

Section 1031 of IRS discreetly mentions that neither your children nor your siblings or parents can act as a middle person during the exchange process. You can’t ask your broker, real estate agent, attorney, investment broker, or CPA to act as your QI. They can only serve as your intermediary if they have not represented you in last two years.

To check the credibility of you QI, you can follow various steps. If the intermediary is a licensed attorney, check with state bar association. You can do this by visiting the online directories. It is also a good idea to ask about special certifications like errors and omissions (E&O) certifications and fidelity bond. Ask your intermediary for references. If the QI is hesitating in giving the names, it is the time to search another one. You can also take our support to find a qualified intermediary that can facilitate the exchange.

We will also help you find replacement property to ensure you defer capital gains tax related to real estate transactions. Click here to know more.