1031 Exchanges: What is & The Role of Qualified Intermediaries

contract to buy and sell residential real estateYou know it, 1031 exchanges are among those subjects that are seemingly difficult to comprehend fully. But, that is no reason to leave 1031 exchanges to chance. It is imperative that you consult an expert in this to sift the correct information from the much that you have read online or in hardcopy publications. Replicate in this the due diligence that you perform during replacement, agricultural and diversified property searches, and tax exchanges. So, whether you are doing this as an individual of you are representing your company, consultation is a key element here.

Most importantly, consult your financial advisor to determine the tax deferral strategy that will suit your circumstances best. It is here that they should explain to you the basic rules well pursuing 1031 exchanges and the role you can play, which, typically, will cover:

Understanding 1031 Exchanges

Usually, 1031 exchanges allow investors to sell appreciated assets and defer any tax payments from capital gains. Ideally, the law provides that when, in this time, you acquire other replacement properties. You, however, need to note beforehand that the assets here can only include investment properties. Any asset that is not a real estate investment does not qualify you for 1031 exchanges.

How Much You Can Save Here

How would it be if you would keep your entire equity from your investment property? That is not impossible. With 1031 exchanges, if you follow the right procedures, you can retain 100 percent equity of your assets. Otherwise, you would have required to pay about a third of your capital to cover rental tax. But, as you have just read, there are stringent requirements to meet this criterion. There is immediate help, though.

analysis report business conceptThe Place of Qualified Intermediaries

Your financial advisor will, most probably, require the services of a certified qualified intermediary to process your assets for 1031 exchanges. The QI, which you might hear your advisor refer to as their accommodator, will facilitate all internal revenues to align with codes for 1031 exchanges. They have the required educational background to understand the interplay finance and tax and law. And, you do not have to look very far to find one. Unless you are in Nevada, your state probably allows hiring anyone that has the professional experience in this field.

But still, cheap is relative here. Typically, the administrative fee that your qualified intermediary will charge is about $1,000. And, that is only for evaluating both the relinquished and replacement properties. Well, that may seem a lot initially; but, why not pay this set-up fee if it will save you the much you pay in rental tax?

As a property investor, it is advisable that you structure your sale and purchase transactions properly. How well you do that will determine how fast your quality intermediary can help you in qualifying for 1031 exchanges. S/He will only require facilitating legal documentation to ensure you comply with your local regulations on 1031 exchanges. And, while your financial advisor can recommend a QI for you, take it upon yourself to research in-depth to determine whether they have the experience to handle your situation.