5 Professionals Behind A Successful 1031 Exchange

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After many years of owning and managing a multi-family rental property, you are ready for a lifestyle change and decide to sell your highly appreciated investment property. You know the tax liability from selling your rental property will be substantial. However, you also know that you can avoid paying that high tax bill by completing 1031 Exchange and investing the proceeds into a qualified replacement property. What you are not sure about is where to find a qualified replacement property and what professionals you will need to work with in order to complete your 1031 Exchange.

Although Exchanges offer many benefits, they can be complicated and must be executed under the strict guidelines of Section 1031 of the Internal Revenue Code. Any missteps can be costly, and there is no room for error regarding rules and deadlines. Having the right team in place will help ensure your 1031 Exchange is successful and meets your goals. Here are five professionals that can play a key role in helping you make the most of a 1031 Exchange.

Licensed 1031 Exchange Advisor

Think of a 1031 Exchange Advisor as the team captain—and every team needs a good captain. A quality 1031 Exchange Advisor is licensed through FINRA and is highly experienced with an in-depth knowledge of the Exchange process, tax code, Exchange strategies, and replacement property option.

As the team leader, your 1031 Advisor will provide consultation, develop your Exchange strategy, help you select and acquire replacement property, and guide you through 8 key steps of the 1031 Exchange process to ensure IRS rules are met at every point.

Quality 1031 Exchange Advisors, like Real Estate Transition Solutions, even have CPAs on staff that can calculate tax liabilities and estimate financial projections on replacement properties. In fact, 1031 Exchange Advisors are continuously analyzing and vetting replacement properties to find quality properties that best align with client objectives. 

Lastly, a good 1031 Exchange Advisor will also work closely with the other professionals on your Exchange team to collaborate on your behalf to help ensure a seamless transition from start to finish.

Qualified Intermediary

Often referred to as an Exchange Accommodator or Exchange Facilitator, a Qualified Intermediary (QI) is an independent entity that holds the proceeds from the sale of your relinquished property while your replacement property is being identified and releases the funds to acquire your 1031 replacement property.

As required by the IRS, prior to closing on the sale of the relinquished property, all exchangers must identify a qualified intermediary and open an “Exchange” with that qualified intermediary who will prepare all the required documents for the Exchange.

Before selecting a qualified intermediary firm for your 1031 Exchange, be sure to consider the QI’s reputation, transaction history, and experience. It is also important to ensure that the qualified intermediary has both errors and omissions insurance as well as fidelity insurance.

Real Estate Broker

You may already have a trusted real estate broker to help you sell your relinquished rental property. However, if you are in the market for a new broker, it is a good idea to work with one who has 1031 Exchange experience.

A real estate broker with 1031 Exchange experience understands the rigid time constraints of an exchange and will take additional measures, such as including a 1031 Exchange Cooperation Clause in your purchase and sale agreement, to help protect your exchange.

CPA / Tax Advisor

Differing taxes is at the center of every 1031 Exchange. For this reason, work with a CPA or tax advisor who understands your financial goals, is familiar with 1031 Exchanges, and can make themselves available to the other professionals involved in your Exchange.  Once your 1031 Exchange is complete, your tax advisor will gather the necessary supporting documents in order to report the 1031 Exchange to the IRS during your upcoming year’s taxes.

Attorney

Although most 1031 Exchange transactions do not require a real estate attorney, there are situations when hiring an attorney is beneficial, such as when a property is co-owned and there is legal entity restructuring that must occur in advance of the Exchange or following the Exchange. Work with a real estate attorney that has experience with 1031 Exchanges and can make themselves available to the other professionals involved in your Exchange.

The Bottom Line

IRS Section 1031 is undeniably one of the most generous sections of the tax code however IRS rules are absolute and must be followed.  Having the right team in place and working with a highly experienced 1031 Exchange Advisory firm will help you make the most of this advantageous transaction structure.

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The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Such offers are only made through the sponsors Private Placement Memorandum (PPM) which is solely available to accredited investors and accredited entities. DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence) and accredited entities only.  If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Diversification does not guarantee profits or guarantee protection against losses. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor.  This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. Securities offered through Aurora Securities, Inc. (ASI), Member: FINRA/SIPC. Advisory services offered through Secure Asset Management, LLC (SAM), a Registered Investment Advisor. ASI and SAM are affiliated companies. Real Estate Transition Solutions (RETS) is independent of ASI and SAM.