A Qualified Intermediary, or QI, facilitates the 1031 exchange transaction as an unrelated third party.

Yes, you can proceed as long as you structure your exchange properly. The best method to accomplish this is to have a Special Purpose Entity acquire title to the replacement property, the Special Purpose Entity will complete the improvements and then you, as the exchanger, will acquire the replacement property from the Special Purpose Entity through a built-to-suit or improvement exchange.

All types of properties are eligible; it depends on how you use it! If you are unsure, reach out and ask us if your reinvestment plan qualifies.

At the end of your exchange, you’ll receive a final report and a blank 8824 form to you, the exchanging individual or entity. Your CPA or tax advisor can assist you in completing the form.

Yes, you can exchange multiple properties. You can relinquish multiple properties for one replacement property, or vice-versa you can exchange one relinquished property for multiple replacement properties. The key is you want your replacement property(ies) to be equal or greater in value than your relinquished property(ies) to avoid taxable boot.

The IRS Code does not allow members/partners to do his or her own exchange, only the entity can do so. With enough preplanning, investors can utilize a technique known as a “drop & swap” whereby certain members/partners can drop their interest from the entity and enter the exchange individually and not at a member/partner.

Real property includes tangible and affixed property that individuals can locate using an address or, in some cases, a parcel ID number. Think of it like this, if you can enter the property address into a GPS, locate it and see what property would be involved in the exchange then it is real property.

Yes, the related party rules do not pertain to all relatives. Instead they disallow persons that are descendants or one another. Lineal descendants, such as parents, children, grandparents, and siblings, qualify as related for this purpose, whereas in-laws, aunts, uncles, cousins and others do not.

While the Regulations do not address this question, it is considered bad practice to refinance in anticipation of entering an exchange for technical reasons. Refinancing after an exchange to pull out some equity is considered proper.

When the process for the buyer(s) to secure financing takes longer than anticipated, this option becomes appealing. Nonetheless, in a 1031 exchange, seller financing necessitates the involvement of a Qualified Intermediary and crucial timing considerations.

Yes, with few exceptions, the title to the replacement property must be in the same name or entity as that which held the relinquished property.

When engaging in a 1031 exchange for selling or acquiring an investment property, specific expenses covered by the sales or exchange proceeds may trigger a taxable event for the exchanger. Standard selling costs like broker commissions or title closing fees do not incur tax liabilities. However, operational expenses paid from 1031 proceeds during closing will result in taxable obligations for the exchanger.

Allowable closing expenses include:

• Real estate broker’s commissions, finder, or referral fees
• Owner’s title insurance premiums
• Attorney or tax advisor fees related to the sale or the purchase of the property
• Closing agent fees (title, escrow, or attorney closing fees)
• Recording and filing fees, documentary, or transfer tax fee

Taxable closing expenses include:

• Pro-rated rents
• Security deposits
• Utility payments
• Property taxes and insurance
• Association’s dues
• Repairs and maintenance costs
• Insurance premiums
• Loan acquisition fees

There is a common misconception that a reverse exchange serves as a substitute for the forward exchange in such cases. However, this is inaccurate. The sole purpose of a reverse exchange is to enable the taxpayer to effectively manage the replacement property when they cannot sell the corresponding relinquished property first. A forward exchange remains essential for the actual swapping of the old property with the new one.

No! This is a frequent issue. For exchange purposes, a taxpayer must roll over all net cash, the loan amount should cover the remaining purchase price.

No, as per the recent amendments to the Tax Code starting from 2018, only real estate is eligible for exchange. Consequently, personal property like a business or franchise cannot be exchanged.

IRS regulations permit the taxpayer to lend the required funds to the Accommodator. Similar to a bank loaning funds, the settlement agent typically receives these funds directly, bypassing the Accommodator. 

No, typically, the Accommodator will Master Lease the property to the taxpayer enabling the taxpayer to manage the property, collect the rent and pay for expenses.