Navigating the 1031 exchange process is challenging for some investors because they lack the proper knowledge of the various rules and timelines that must be followed. To guide them through the process, many individuals hire a third party to offer assistance to ensure mistakes and delays don’t invalidate the exchange. These are often qualified intermediaries or 1031 facilitators. But how can you know which one is right for your unique exchange? In this blog, we’ll explain the difference and the exchanges each role is ideal for.
What Does a 1031 Facilitator Do?
A facilitator is a third-party expert who works with a real estate investor to verify they adhere to strict deadlines during a reverse and improvement exchange. These strategies involve purchasing the replacement investment before the relinquished property.
However, one of the rules is that the investor can’t hold both properties at the same time, or they’ll have to pay the capital gains tax. A 1031 facilitator assists their client by holding onto the replacement property until they can sell these existing ones. They also handle the transfer process and verify it meets the strict deadline of completing it within 180 days.
What Does a Qualified Intermediary Do?
Like a facilitator, a qualified intermediary is a third-party individual who helps real estate investors meet the rules and regulations for a 1031 exchange. They typically work on deferred exchanges and serve as a safe harbor for the proceeds from the sale. One of the regulations is the investor can’t handle any funds from the relinquished property, or they risk having to pay the capital gains tax.
An important element of the qualified intermediary’s role is that they create a written agreement that limits the investor’s rights to receive, pledge, borrow, or obtain the benefits of the money before the exchange is complete.
What Are the Responsibilities of a Qualified Intermediary in a 1031 Like-Kind Exchange?
As a neutral individual, the qualified intermediary acts on behalf of the investor to verify they’re meeting strict rules and following the necessary timeline. They help coordinate and manage the exchange, protect their client’s financial interests, and seamlessly transfer the property to close out the exchange. Other responsibilities include:
Holding Funds
A qualified intermediary safeguards the funds from the sale of the relinquished property to prevent the investor from directly receiving the funds and triggering a taxable event. These funds are held in a separate, secure account until they are used to acquire the replacement property.
Structure the Exchange
The qualified intermediary advises investors on structuring the exchange correctly to comply with IRS guidelines. They help prepare the necessary documentation, including the exchange agreement and assignment of rights, ensuring everything is in order.
Identifying the Replacement Property
Qualified intermediaries assist investors in identifying potential replacement properties that meet the like-kind requirement. They play a crucial role in adhering to the strict identification rules set by the IRS.
Completing the Exchange
Throughout the process, the intermediary coordinates with all parties involved, such as escrow companies, closing agents, and attorneys. They ensure the timely transfer of funds and completion of all necessary paperwork.
Why Work With a Qualified Intermediary for a 1031 Exchange?
While both a 1031 facilitator and a qualified intermediary play important roles in a 1031 exchange, working with a qualified intermediary is often considered the better option. The expertise and experience they bring to the table are invaluable when it comes to navigating the IRS rules and regulations surrounding 1031 exchanges.
Qualified intermediaries understand the strict timelines involved in 1031 exchanges and ensure all deadlines are met. They assist investors in identifying suitable replacement properties within the IRS’s like-kind guidelines. Additionally, qualified intermediaries provide the necessary documentation, guidance, and oversight to ensure the exchange proceeds smoothly and complies with IRS regulations.
By working with a qualified intermediary, investors can be confident their exchange will be executed correctly, minimizing the risk of triggering taxable events and maximizing the potential benefits of the 1031 exchange.
Complete Your Exchange on Time With Our 1031 Exchange Accommodators
One of the challenges of finding the right 1031 exchange accommodator for your tax-deferred strategy is that most companies don’t specialize in 1031 exchanges. Instead, it’s an additional service they offer on top of other solutions.
The 1031 Exchange Intermediaries team understands the importance of well-executed exchanges and works with clients across the country to help them maximize their return on investment. Investors partner with us because we provide the following advantages:
Experienced Team
The 1031 Exchange Intermediaries team has over three decades of experience helping investors navigate the 1031 exchange process. Our knowledge allows us to identify issues before the IRS can challenge the transaction.
Knowledgeable
Staying compliant with IRS regulations prevents an exchange from being challenged. By focusing on 1031 exchanges, our team is able to monitor the latest changes and make sure your strategy adheres to the most recent rules and timelines.
Detail Oriented
Mistakes during the exchange process can cause delays that invalidate the transaction. The 1031 Exchange Intermediary team takes pride in being extremely detail oriented and ensures errors don’t impact your strategy.
Communicative
Transparent lines of communication help prevent delays from impacting the exchange. Our team keeps in touch with you throughout the process to make sure you’re updated on where the transaction stands.
Complete Your 1031 Like-Kind Exchange With Our End-to-End Process
Our 1031 exchange accommodators understand the importance of preventing issues by keeping an exchange on schedule. We help you complete your transaction by following our end-to-end process:
Step One: Consultation
We begin every exchange with a consultation where one of our qualified intermediaries assesses your situation and determines which strategy is best for your needs. Our expert also estimates the tax savings to demonstrate the value of working with us.
Step Two: Navigation
Once we finalize the 1031 exchange strategy, our team will ensure the transaction meets the strict conditions. Our knowledge of the rules allows us to identify potential problems before the IRS can challenge it.
Step Three: Execution
After verifying the exchange is compliant with IRS guidelines, we structure the final transaction and transfer the property to you. Working with us means you’ll keep more of what you earn from your real estate investments.
