Why Is It Important To Choose A Qualified Intermediary Carefully?

Why Is It Important To Choose A Qualified Intermediary Carefully?

If you are looking for property investment in Massachusetts, the chances are you taking the support of Section 1031 to defer the taxes. As per the regulation of IRS, you need a qualified intermediary (QI) to execute the process.

There isn’t any federal authority or national standard that keeps a check on qualified intermediaries. Only in some states of the US, the QI has to be insured or licensed. Otherwise, any individual can become a QI without any restriction. This shows that you must be careful while choosing a QI for the exchange process.

Role of a QI

A qualified intermediary is responsible for:

  • Making sure that exchange complies with the rules of the IRS
  • Coordinating the documents needed for the exchange
  • Holding the proceeds of investor from the sale of property until it is needed again for purchasing a replacement property

Some qualified intermediaries are not competent enough to manage the exchange process. Several QIs declare bankruptcy that results in losses for the investor.

Risks associated with QIs

If you an intermediary is unable to perform the duties, then:

  • The chances are that your money might be stolen.
  • IRS might disqualify your exchange, and you have to pay taxes
  • In a federal audit, you have to in additional resources to defend your position

Final Thoughts

Though these incidents are rare, it is still a wise idea to do some research before choosing a qualified intermediary. Check where your funds will be held by the investor. Also, make sure the QI is in business for a long duration.

You can take the support of FAI Exchange in finding a trusted QI for your exchange process. Being a real estate expert, the company helps finding investment property that can qualify for 1031 exchange.

Learn about the other services of this company here.

Questions You Should Ask Your Qualified Intermediary

Questions You Should Ask Your Qualified Intermediary

While planning for a 1031 exchange, choosing a qualified intermediary is the last thing that comes to the mind of investors. The importance of qualified intermediaries is more than you have imagined. Also, it is important to do a research because a lot of QIs are not regulated.

Here are some questions you should ask a QI before finalizing for exchange process.

Question 1: How will you hold my funds?

Insist the QI to hold your funds in a Segregated Qualified Escrow Account or Segregated Qualified Trust Account. Do not settle on low cost options, such as commingled account.

Question 2: Where will you hold my funds? 

Make sure the answer is a large, renowned FDIC Insured bank. It is necessary to note that FDIC insurance usually has a maximum limit of 250,000 dollars per account holder.

Question 3: Can you provide me with the written copy of internal controls?

The procedures and policies that protect the funds against fraud and thefts are known as internal controls. Through the internal controls, you will know about the oversight, approvals, and steps needed to move/release the money.

Question 4: How long have you been in business?

The experience of the QI in understanding the regulations and handling exchanges is proportional to the number of years the QI has remained in the business.

Answer to these questions will help you find a reputable QI that will not only ensure smooth handling 1031 exchange but will also advice you through different stages.

If you are looking for replacement property in Massachusetts, contact FAI Exchange. The firm will also help in finding a QI for the exchange process.

Click here to know more.

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.

1031 Exchange Glossary: Terms You Should Know (Part 2)

1031 Exchange Glossary: Terms You Should Know (Part 2)

In our previous post, we discussed some basic terms associated with 1031 exchange. Here we present another set of terms that will help you conduct the process easily.

These terms include:

Boot: It is a non like-kind property that may be received during the exchange.

Actual Receipt: It is referred as the physical possession of proceeds.

Capital gain tax: For the investments that are held by an individual for a year or more, the state and federal government levy a tax known as a capital gain tax. These investments include stocks, bonds, collectibles, and real estate.

Depreciation: The regular wearing away of the property over the economic life of the property is known as depreciation.

Exchange Agreement: A formal agreement between the exchanger and qualified intermediary that sets forth the intent of the exchanger to exchange relinquished property with replacement property. The agreement also includes terms and conditions, along with the every party involved in the transaction.

Identification period: The period of 45 days given from the closing the relinquished property given for identifying potential replacement property.

Capital gain/loss: The difference between the selling price of a property, along with the adjusted costs.

Closing costs: The amount paid during the closing for the replacement or relinquished properties.

Tax-deferral: the delay of taxes to a later year, by recognizing gain or income during a later period. 1031 real estate exchange is one of the popular methods of deferring the taxes.

If you looking for companies to help you through the process of 1031 exchange, then you can take the support of FAI Exchange. Click here to know more.

6 Reasons You Should Invest in a Delaware Statutory Trust

6 Reasons You Should Invest in a Delaware Statutory Trust

DST is one of the underrated business trusts when it comes to real estate investments in the USA. But in reality, it can offer you myriad benefits due to important attributes attached to it.

Here we present 5 major reasons to invest in this unincorporated business trust (UBO).

Can be purchased as a replacement property

The investors, who are planning to defer taxes on capital gains through 1031 exchange, can purchase Delaware Statutory Trust properties as a replacement property.

No mortgage on replacement property

As the financing is already available for DST property, there is no need of getting a mortgage on the replacement property.

No management responsibility

The investors are prevented from the hassles related to the management of the property. The time consumption and paperwork are also very less as compared to the direct property purchase.

Can be used as a relinquished property

While planning to sell the DST, the investors are eligible for a 1031 tax-deferred exchange. This means the DST can act as a relinquished property.

No voting for major decisions

The mutual funds that use a DST do not need voting to approve any major decision. On the other hand, in the case of a tenant-in-common concept, equal voting rights and unanimous approval are the major attributes.

Low investment

Last, but not the least, the investors can purchase the DST properties for as low as 25,000 dollars.

For investors looking for a good GST property, FAI exchange appears as a trusted partner. Check all the available GST properties by clicking this link.