Choosing the Right Qualified Intermediary For a 1031 Exchange

If you are planning on going through with a 1031 exchange you are going to need a qualified intermediary to help carry out your like-kind exchange. But what makes a qualified intermediary qualified?

The law is only specific in that it must be an unrelated third party. Someone that you have no ties to. This disqualifies anyone that you have a familial or business relationship with. Your realtor, hairdresser, and accountant cannot be your 1031 exchange accommodator. But just because someone is not disqualified from being your intermediary does not mean that they necessarily qualify. This is why it is important to vet intermediaries that you might be looking to hire. You should ensure that they have the proper experience and demonstrable results to show.

It is also vital that you find a qualified intermediary before you begin the exchange process. If you close the sale of your property without an intermediary in place, three things will prevent you from doing an exchange. First, the QI was not involved per the IRS code. Second, the exchange was not documented properly on the closing documents and statements. Third, you received the money. The IRS will not allow you to have control of your money when you are doing a 1031 exchange. Whether you have the actual money or whether the money is sitting in your attorney’s escrow account or your title company’s account, waiting for your direction, it isn’t allowed.

Experiences, references, and results are everything, investigate thoroughly to ensure that you get the best possible service from your QI.

Dreaming Big with Your Real-Estate Investing

It is easy to feel trapped if you have been doing something one way for a long time. Real-estate investing is no different. The prospect of moving to a new city or investing in a different kind of real-estate might seem beyond your reach. But if you utilize the proper tools your real-estate investing is limited only by your imagination.

One such tool is a 1031 exchange. A 1031 exchange lets you sell investment real-estate and defer capital gains taxes, giving you the opportunity to use your tax dollars for your benefit. If you are looking to move from one type of real-estate to another that is very much an option. And the best part is that the property that you exchange for can be located anywhere in the country.  A 1031 exchange gives you the opportunity to maximize your investing and broaden your portfolio.

Multi-Member LLCs and 1031s?

When it comes to 1031s, it is all about whose name is on the original tax return. This goes for LLCs as well as individuals. Multi-member LLCs follow the same rules as everyone else. The name on the original tax return must be the name on the title of the replacement property. If an LLC is multi-member, they probably file taxes as a partnership. Each LLC can sell the property it owns and do a 1031 to buy a replacement property. If you find a replacement property that is big enough, then each LLC could sell and buy a % of the larger replacement as a tenant in common.

Example – each LLC owns a property that is worth $500,000. They could both sell and 1031 each into a 50% tenant in common interest of a property worth $1 million.

Once the LLCs have completed their exchanges, they could simply remain as tenants in common. Or could work with their accountants to dissolve one or both and leave the property in one LLC with the same membership interest allocation.