Choosing a Qualified Intermediary or one of the 1031 Real Estate Tax Exchange Companies in the marketplace is vital to your 1031 Exchange transaction. Without this critical selection, a 1031 exchange cannot be completed, as all funds from your relinquished property must go into an account held by the Qualified Intermediary or QI.
Throughout the years, at JSG Realty, our dedicated 1031 exchange team has worked with a variety of buyers across the United States. Many are new to the 1031 exchange process and are unfamiliar with the available 1031 real estate tax exchange companies in the industry.
With our assistance, we aim to inform and educate all 1031 exchange transactors, so they are comfortable with the entire process. Certain steps and procedures must be followed to complete a successful exchange.
Unfortunately, the thought of a 1031 transaction can overwhelm many people. The good news is the sequence of events can be seamless and allow for a great experience satisfying all parties involved.
We have worked with many 1031 exchange clients in the past brand new to this type of transaction. An experienced 1031 exchange firm is key. We make certain they are fully educated and briefed on the entire process from the very beginning.
What is a 1031 Exchange Tax Company or Qualified Intermediary?
As a Company, JSG Realty and 1031exchangebrokerage.com, prides itself on our communication, assistance and coordination with all 1031 related matters. Due to our lengthy experience in the industry, we hold a wide rolodex of 1031 real estate tax exchange companies and qualified intermediaries. They are more than willing to assist and help with your transaction.
A QI, or an exchange facilitator, are intermediaries and people that form a written agreement with the taxpayer to facilitate the 1031 exchange. As part of the exchange agreement, they acquire the relinquished property and transfer the property to the taxpayer. They never hold title to the property.
Interestingly enough, there are no special licensing requirements or certifications for the intermediary. Accountants, attorneys and realtors who have served taxpayers in their professional capacities within the prior two years are disqualified from serving as a Qualified Intermediary for a taxpayer in an exchange.
Selecting Credible 1031 Real Estate Tax Exchange Companies
- Recommendations from a trusted Broker – An experienced real estate Brokerage Company that has served 1031 exchange transactions, should be able to refer a quality intermediary. Remember, the lowest price is not always the best option as the intermediary must have experience and knowledge with the process. They should also have experience transacting in the State of the potential purchase. This may seem unimportant, but different States require different procedures when mutually executing a contract
- Referral from a Colleague – Speak with your colleagues and friends regarding a 1031 exchange. It’s quite possible they have previously transacted in a 1031. A 1031 swap can be more common than it seems. Relinquishers of investment property often choose a 1031 to defer a capital gain. It is a wise financial strategy for many property sellers
- Attorney references – The attorney that is providing the legal work for your relinquished property can probably assist with a recommendation for a 1031 qualified intermediary. It is commonplace for an attorney to have a rolodex of trusted vendors that can assist with a variety of situations. Connecting you with 1031 real estate tax exchange companies should be commonplace for the knowledgeable attorney
- Google searches – The Google search engine is an excellent way to research potential 1031 exchange intermediaries. Depending on the website, you may be able to view reviews, fees and other important information
Property Identification Rules
- The Three-Property Rule – Only three properties can be identified. Thy are not all mandated to be purchased to satisfy the exchange; only the amount
needed to satisfy the value requirement.
- The 200% Rule – Allows for unlimited property selection as long as the aggregate fair market value all od replacement properties does not exceed 200% of the aggregate Fair Market Value (FMV) of all of the relinquished properties as of the initial transfer date. All identified properties are not required to be purchased to satisfy the exchange; only the amount needed to satisfy the value requirement.
- The 95% Rule – Any number of replacement properties if the fair market value of the properties actually received by the end of the exchange period is at least 95% of the aggregate FMV of all the potential replacement properties identified. In other words, 95% (or all) of the properties identified must be purchased or the entire exchange is invalid. An exception to the 95% rule is that if you close on a property within the 45 day period it still qualifies for the exchange.
Finding trustworthy 1031 Real Estate tax exchange Companies should be a simple process, but make sure your qualified intermediary has been vetted. The majority of 1031 Real Estate tax exchange Companies will do a great job, but horror stories do exist regarding inexperienced exchange companies. Make certain to select a Company based on their experience and not their price.
Our Two Cents
Throughout the years, JSG Realty has seen many variations of identification in the 1031 exchange process. We have seen buyers use the three property rule, while others deploying the 200% rule strategy.
Every transaction and investor has different requirements. The most important lesson is to identify in advance and avoid a last minute decision. This will lead to confusion, anxiety and a greater chance of your 1031 exchange being jeopardized.
Identification of a property is simply not enough. While 1031 Real Estate tax exchange Companies will assist with the identification process, it is the Brokers responsibility to make sure the property can indeed be purchased. A bad scenario would entail a bidding war on a property identified.
It is critical to make sure the property can be purchased and sent to contract immediately after identification. This is a common pitfall often made in a 1031 exchange. Buyers identify property with 1031 Real Estate tax exchange Companies, but fail to lock up the properties. Our experience as qualified 1031 exchange Brokers has taught us to act and structure transactions differently.
Even further, identification and purchase of a 1031 exchange property is not enough for us. As a full service 1031 exchange Brokerage firm, we make certain not to disappear after your exchange is complete.
JSG Realty 1031 Exchange Services
We assist with property management, leasing of Apartment or commercial spaced, frequent check-ups on the property and other items necessary.
When it comes to identifying specific types of properties, 1031 real estate tax exchange companies should not have a preference on the property selected. Their specific concern should be to make sure numerous properties are selected in advance of the 45 day identification deadline.
It is also important to disclose to 1031 real estate tax exchange companies on whether financing will be obtained for a larger purchase and the potential structure of the contract deposit for a purchase.
Certain real estate transactions require a 10% deposit at contract signing, while other sellers may ask for more funds or in come cases less down payment. This is the role your Real Estate Broker will ascertain in the purchase negotiation.
On occasion, a 1031 exchange client may find a property of interest before the sale of their relinquished property. In this case, the buyer will need to consult 1031 real estate tax exchange Companies for guidance and deal structure. We have witnessed buyers withdraw funds from their personal accounts and reimburse them from their 1031 account at a later period in time.
In a competitive 1031 industry, there are many 1031 real estate tax exchange companies to consider when pursuing your transaction. We advise that you ask for referrals and recommendations. Speaking with your attorney, accountant, friend or colleague may give inside on a reputable service to use.
As Real Estate Brokers at JSG Realty, we are available to assist with any and all of your 1031 exchange needs.