Considering a Tax Deferred Exchange? Here's a Few Things to Keep in Mind

Posted By: Kyle Williams Investing ,

In the 1031 game, if you are considering a tax deferred exchange, what kind of “Dream Team” should you have lined up?  How do you choose who you work with? It’s more important than ever to start the process early and make sure you’re ready to go! Here’s your 1031 starting lineup:

1031 Qualified Intermediary
The most crucial and key position. Because 1031s are unregulated, it’s imperative to choose a reputable, financially-secure Qualified Intermediary (QI) to help investors have a successful 1031 exchange. Your QI prepares and manages the pertinent documents to comply with safe harbor regulations and coordinates with your team, but most importantly, they control your funds. Always review the company’s financial strength and their insurance policies for your exchange.

An Agent or Broker that Understands 1031 Exchanges
You want an experienced residential or commercial real estate agent/broker involved. Your agent/broker should be familiar and comfortable with exchanges, and they should understand the 1031 timeframes and basic rules. After all, they will be the ones that guide you through the sale and purchase of your investment property.

An Experienced Attorney
 A lawyer will give you points and legal advice on any gray areas in your transaction. While your Qualified Intermediary can tell you about Section 1031 of the tax code, QIs cannot offer specific legal advice as they are a disinterested party in the transaction. Your attorney is critical, especially with complex transactions.

A CPA
It is imperative that you choose a CPA who understands tax deferred exchanges and one who can determine if a 1031 makes sense in your situation. You will want to involve your CPA early in the planning stages of your sale, and then keep your CPA informed as you progress through the transaction. That way, when it comes time to report the exchange on your tax return, your CPA will already be familiar with the transaction. They will also be the ones that help you navigate through the gray areas within section code 1031.

A Closing Team
A competent, certified closing agent is a crucial part of the transaction. Depending on where you are selling, that might be an attorney or an escrow/title officer. Disbursement of funds and proper closing statement documentation are just a few of the main concerns with a 1031 Exchange. You do not want any accidental disbursements of monies or problems with closing within your deadline.  Choose a reputable firm that has extensive experience with 1031 transactions and has the staff to manage the workflow.

Kyle Williams, a Vice President and Account Executive with Investment Property Exchange Services, Inc. He is responsible for business development in the State of Washington, maintaining an office in Bellevue. IPX 1031 is wholly-owned subsidiary of Fidelity National Financial, Inc. (FNF). Kyle is also a member of RHAWA and enjoys teaching classes and leading 1031 presentations.