Free Guide to 1031 Exchanges

Choosing a Qualified Intermediary for your 1031 Exchange

The IRS requires those engaging in a 1031 Tax Deferred Exchange to retain the services of a qualified intermediary to hold the proceeds from the sale of one property and facilitate the purchase of a like-kind property. Due to the very important role they have in this real estate transaction, a great deal of care should be taken when choosing an intermediary. It's vital that investors do some research and ask the right questions before making this decision.

Although a 1031 Tax Deferred Exchange can help investors delay paying capital gains taxes on the sale of a property if the proceeds will be used to purchase a similar property, you must meet the strict requirements of the IRS. One of the key rules is that the investor must use the services of a qualified intermediary. Qualified intermediaries are also commonly referred to as accommodators or facilitators. The responsibility of the qualified intermediary is to act as a neutral third party and hold the proceeds of the sale of an investment property until another property has been found. The qualified intermediary than purchases the property using the proceeds from the sale of the initial property and than transfers ownership to the investor. Obviously, choosing the right qualified intermediary is a hugely important factor in conducting a 1031 Exchange.

Investors should plan on choosing a qualified intermediary before selling the initial property to ensure that all the paperwork and other details are taken care of to IRS specifications. When choosing a 1031 Exchange intermediary, make sure that you take the time to do your research before making a decision. Taking some time up front to ask questions, compare costs and to find out about services can save you a lot of time and money in the long run.

The qualified intermediary you choose should be knowledgeable and reliable. Don't simply take their word for it. Ask for references and check them. Make sure that they have a lot of experience with the process of conducting a 1031 Tax Deferred Exchange. If anything negative comes up on a reference check, keep searching. Remember, the qualified intermediary you choose to handle your 1031 Exchange will be entrusted with a great deal of your money.

When questioning a prospective qualified intermediary for your 1031 Exchange, be sure to ask how your money will be held. Your money should be put in an account separate from that of the qualified intermediary or any other of their clients. Several qualified intermediaries have had their accounts frozen while being investigated for questionable business practices. If you end up in this already difficult situation with the qualified intermediary you retain, having your money mixed into their account can make it much harder to retrieve your funds.

Choosing the right qualified intermediary to handle your 1031 Exchange is one of the most important decisions you'll make. Many investors have known the horrors of not being able to gain access to their money because a qualified intermediary's accounts have been frozen, or worse, been defrauded by a qualified intermediary who took their money and ran. Don't let one of these scenarios happen to you. Ask questions, check references and make sure your money is held separately from other funds to ensure the safety of your investment.