who can be a 1031 qualified intermediary be your lawyer

In some jurisdictions, an attorney can be designated as your Qualified Intermediary, but it can’t be your regular legal counsel -- IRS rules state that legal counsel can only act as a Qualified Intermediary if he or she has not performed services for the client in the prior two years unless the work is related to a 1031 exchange.

Full Answer

How does a Qualified Intermediary faciliate a 1031 exchange?

• Intermediaries, attorneys and tax advisors are in general agreement over which costs qualify. However, each expense stands on its own merit with some requiring close examination. ...
• The big benefit of qualified exchange expenses is that they offset the gain realized from the relinquished property’s sale. ...
• The list is not exhaustive. ...

How to know if you qualify for a 1031 exchange?

Types of 1031 exchanges

• Simultaneous exchange. In a simultaneous exchange, the buyer and the seller exchange properties at the same time.
• Deferred exchange (or delayed exchange) In a deferred exchange, the buyer and the seller exchange properties at different times. ...
• Reverse exchange. In a reverse exchange, you buy the new property before you sell the old property. ...

What you should know about 1031 exchanges?

What you should know about 1031 Exchanges! What is a 1031 tax deferred exchange? A 1031 exchange, in its simplest form, is a person or business entity selling real estate and purchasing other real estate.

What do you need to know about a 1031 exchange?

There are 7 primary 1031 Exchange rules, which include:

• The like-kind property rule
• Investment or business purposes only
• Greater or equal value
• Must not receive “boot”
• Same taxpayer
• 45-day identification window
• 180-day purchase window.

Can anyone be a qualified intermediary?

There are many rules governing who can and can't be a Qualified Intermediary, so it is best to review the disqualified parties first. According to the IRS, a Qualified Intermediary cannot be a family member, employee, financial connection, or agent of the taxpayer.

Can I be my own qualified intermediary?

Specifically, the QI must be an independent party, which is 100% neutral from any of your dealings. The goal with this is to establish an independent relationship between yourself and the QI. It means you, the exchanger, can't act as your own qualified intermediary.

Who can serve as qualified intermediary in 1031?

Qualified Intermediaries Under Treasury Regulations section 1.1031(k)-1(g)(4), a QI is any person who is not the exchangor or a disqualified person.

Can a CPA be a qualified intermediary for 1031 exchange?

While it may be tempting to ask your CPA to act as your Qualified Intermediary, a CPA cannot facilitate a 1031 exchange between investors. Under IRC Section 1031 guidelines, CPAs, attorneys, investment bankers, and real estate agents/brokers fall under the 'agent' category.

Can I file a 1031 exchange myself?

1. Don't try to exchange a piece of personal property. 1031 exchanges can only be done between investment properties that you own, which means REITs, funds or an LLC that owns shares in another LLC don't qualify.

Can a bank serve as a qualified intermediary?

When you sell your existing investment property, you'll want to work with a qualified intermediary (QI). A qualified intermediary may be a CPA with 1031 experience, a real estate attorney, or a bank, such as Wells Fargo.

Can you do a like kind exchange without a qualified intermediary?

The Use of a Qualified Intermediary is Required For that reason, the use of a qualified intermediary is necessary. That requirement eliminates the ability of an investor to complete a 1031 exchange without assistance.

How much does a Qualified Intermediary charge?

between $800 to $1,200Institutional Qualified Intermediaries typically charge set-up and administrative fees that cover the sale of the relinquished property and the purchase of the first replacement property, which tend to range between $800 to $1,200 for the initial transaction.

Who can facilitate a 1031 exchange?

qualified intermediaryA qualified intermediary (QI) must facilitate a 1031 exchange. The QI is a person who holds funds from the relinquished property and uses them to acquire the new replacement property. These funds never come into contact with the property owner, who is involved in the 1031, per the IRS 1031 rules.

Do I need an accountant for a 1031 exchange?

Neglecting any one of the requirements will result in a disqualification of the exchange and the sale of the relinquished property being a taxable transaction. The 1031 exchange rules are complex, so it is important that a knowledgeable CPA and exchange accommodator is utilized.

What is a qualified intermediary for 1031 exchange?

Using a Qualified Intermediary to document all the transactions of your exchange and hold your proceeds is part of those rules. The IRS code states that an unrelated third party must document and manage just the 1031 Exchange part of the transaction. During the exchange process, you will use the services of your usual and familiar real estate professionals. This may include a real estate attorney, a title company, an accountant for tax reporting, and probably several real estate agents. A Qualified Intermediary is simply another professional that is added during a 1031 Exchange. In addition to their mandated role, a good QI will also act as your guide through the process.

What is a qualified intermediary?

A Qualified Intermediary is simply another professional that is added during a 1031 Exchange. In addition to their mandated role, a good QI will also act as your guide through the process. Something important to note here is that the Qualified Intermediary MUST be involved before the closing of the sale of your investment property.

What is a 1031 exchange?

A 1031 Exchange starts with the sale of a piece of investment real estate and ends with the purchase of replacement property. But this only works if your Qualified Intermediary is in place prior to the sale.

Can a QI take title to a relinquished property?

Note that your QI should never take title to either the relinquished or replacement properties. The QI is the assignee only on the settlement statement. This is an aspect of the assignment of rights that should be discussed in your Qualified Intermediary selection process (see more below).

Can you be a qualified intermediary for a used tire?

This essentially means that as long as you haven’t purchased used tires from the used tire shop down the road, they could technically act as the Qualified Intermediary. However, that’s clearly not in your best interest. To understand why, let’s take a look at exactly what the Qualified Intermediary does.

Introduction

1031 Exchanges are an excellent tax strategy that many investors use as a way to defer paying capital gains taxes on the profits made from the sale of a property. But it’s not a do-it-yourself project. It ‘takes a village’ as they say, and the exchange process is no different.

What is a Qualified Intermediary?

A QI is sometimes referred to as an “Exchange Facilitator” or “Exchange Accommodator”. In essence, Qualified Intermediaries act as third party fiduciaries who take care of or hold money or assets for another person.

What Does a QI Do?

A 1031 exchange facilitator is in charge of a number of tasks during the exchange process. A QI will hold the money throughout the exchange and their key duties include the following:

Who Can be a Qualified Intermediary For a 1031 Exchange?

The IRS hasn’t outlined rules for what qualifies someone to be a Qualified Intermediary. However, there are rules as far as what disqualifies a person. For instance, if someone has acted as your “agent” at any time during the last two years, they will not qualify. The following are disqualified from being your QI:

Qualified Intermediary 1031 Exchange Fees

The total cost of doing a like-kind exchange can vary depending on which type of exchange you want to do. For example, if you are doing a Reverse 1031 exchange, the fees might be higher than say, the more popular Delayed exchange. Reverse exchanges can present additional risks and costs because they are more complex.

How to Find a Great Qualified Intermediary

A great Qualified Intermediary should be highly experienced with the type of 1031 exchange you wish to accomplish. Ideally, your QI has performed thousands of successful exchanges and has lots of positive client reviews. Here are a few ideas for how to find a great QI:

Conclusion

A Qualified Intermediary for a 1031 exchange plays a critical role in facilitating a successful exchange. Which is why it’s so important to compare several different QIs, their experience, services and fees, before moving forward with an agreement.

What are the exceptions to disqualification of an agent?

Exception 1 The regulations except out services that are routine financial, title insurance, escrow or trust services performed by a financial institution or title insurance company.

Can an attorney do a 1031 exchange?

Let's be clear. Attorney's can act as 1031 qualified intermediary. Just don't use your attorney.

Can my CPA or Attorney Act as my Qualified Intermediary?

The treasury regulations envision the qualified intermediary as being a neutral third party in a 1031 exchange - someone who is not beholden to the tax payer. The taxpayer’s agents, employees, and relatives are all disqualified from being the qualified intermediary.

Choosing the Right Qualified Intermediary

Most qualified intermediary companies are separate independent companies that operate in this space exclusively. This is their bread and butter business and that’s what they do day in and day out. That’s who you want to use for your QI.

What is a lawyer in a transaction?

A lawyer is your forward that will give you points and legal advice on any gray areas in your transaction. While your Qualified Intermediary can tell you about the 1031 tax code, QIs cannot offer specific legal advice. Your attorney is a critical player especially with complex transactions.

What is an IPX1031?

As the nationwide leader in tax deferred exchanges, IPX1031® is here to offer you the best in service, experience and security. When you choose IPX1031® as your Qualified Intermediary, you can be confident that your exchange will be handled expertly and that your funds will be safe, secure, and available when needed. IPX1031® strives to help our clients and their advisors keep current on tax and industry issues pertaining to 1031 Exchanges. For more information about us, additional resources, or our complimentary monthly webinars, visit our website at www.ipx1031.com.

Do you need a CPA for tax deferred exchanges?

It is important that you choose a CPA who understands tax deferred exchanges. You will want to involve your CPA early in the planning stages of your sale, and then keep passing the CPA your information as you progress through your game. That way, when it comes time to report the exchange on your tax return, your CPA is familiar with the transaction.

Why do attorneys do 1031 exchanges?

Most attorneys do not specialize in that part of the tax code and will only do them occasionally. Lack of familiarity with the mass amount of case law and frequently evolving requirements can jeopardize the success of your exchange.

Can I use a qualified intermediary for a 1031 exchange?

The IRS statute requires that you use a qualified intermediary (QI) to perform your 1031 exchange. While it is possible for an attorney to provide this service , it doesn’ t have to be an attorney and it can’ t be an attorney you have utilized for any other matters. This is because the IRS statute also requires that the QI be an unrelated third party.

What does an attorney do when acting as a closing agent?

When acting as a closing agent, the attorney receives the purchase price from the buyer and, once the closing occurs, disburses it to the seller.

Who handles the closing of a property exchange?

Since in most cases the buyer’s attorney handles the closing, this issue comes up most often when the buyer is completing his exchange by acquiring the replacement property. One view is that the buyer’s attorney is the agent of the taxpayer and may compromise the exchange if he handles the exchange funds when closing the deal.

Can you defer taxes on a 1031?

Under IRC Section 1031 and the deferred exchange regulations, a taxpayer can defer taxes by selling his relinquished property and acquiring replacement property at a later date, and provided that all of the rules are followed, the transaction is considered an exchange rather than a sale followed by a purchase.

Can an attorney act as an intermediary?

The IRS rules provide that an attorney cannot act as a qualified intermediary for a client if the attorney has performed services for the client any time during the two year period ending on the date the relinquished property closes, unless those services are limited to the client’s 1031 exchange.

Family Members and Employees

See more on realized1031.com

Financial Connections

Agents

Why Is A QI-EIN Necessary?

Final Takeaways