Learn How to Choose a Qualified 1031 Exchange Facilitator

While executing a like-kind exchange under Section 1031 of the Internal Revenue Code can achieve substantial tax savings, mistakes and oversights can lead to unnecessary liability and unwanted scrutiny. As a result, when seeking to achieve tax deferral under Section 1031, it is critical to work with an experienced 1031 exchange facilitator (sometimes referred to as a 1031 qualified accommodator, 1031 agent, or 1031 exchange specialist).

An experienced 1031 exchange facilitator will be able to assist with the sale of your investment property, as well as the purchase of your replacement property(ies). When conducting a 1031 exchange, working with a qualified accommodator is critical for ensuring that the exchange funds involved in the transaction do not become subject to immediate taxation. At 1031 National Services, our exchange specialists have decades of experience providing these services to our clients, and we can guide you through the exchange process step by step, regardless of your level of experience.

10 Important Considerations When Choosing a 1031 Exchange Facilitator or Intermediary

With so many companies offering 1031 exchange services, how do you choose a company to guide you through the process? Here are 10 important factors to consider when choosing a 1031 exchange facilitator:

1. How long has the 1031 Exchange Facilitator been in business?

Like-kind exchanges are complex, and mistakes and oversights can be incredibly costly. Additionally, different circumstances call for different approaches and implicate different requirements. As a result, it is important to choose a 1031 exchange facilitator that has decades of relevant experience and that has guided a multitude of taxpayers through the 1031 exchange process.

2. Is the 1031 Exchange Facilitator operated by attorneys?

Executing a like-kind exchange is a legal process that requires legal documents and carries legal risks. Preparing the necessary documents and addressing the risks involved requires an in-depth understanding of the process. This makes it extremely important to choose a 1031 exchange facilitator that is attorney-owned and operated.

3. Does the 1031 Exchange Facilitator have positive reviews and testimonials?

Positive reviews and testimonials are generally a good sign that you will have a positive experience as well. A lack of positive reviews and testimonials may indicate that a 1031 exchange facilitator lacks experience, while a large number of negative reviews is generally a sign that you should choose another facilitator.

4. Where will your funds be held? Is the Facilitator IRS-Compliant?

When executing a 1031 exchange, knowing where your funds will be held is extremely important. Your exchange funds should be held in escrow, and your 1031 exchange agent should comply with the IRS’s guidelines for qualified intermediaries. This should be clearly spelled out in your exchange agreement with your facilitator.

5. Can You Get Straightforward Information About Pricing, Timing and Expectations?

Transparency is extremely important when choosing a 1031 exchange agent. In addition to being able to learn where your funds will be held, you should also easily be able to obtain straightforward information about the facilitator’s pricing and the timing for executing your exchange. The facilitator should set clear and reasonable expectations, and you should feel confident that the facilitator is capable of providing professional and timely qualified intermediary services.

6. Are the 1031 Exchange Facilitator’s Rates in Line with Industry Standards?

While all 1031 exchange facilitators set their own rates, there are certainly industry standards. While choosing a facilitator based on price might not necessarily be your best option, you certainly shouldn’t be overpaying. A qualified facilitator should charge rates that are in line with industry standards while also being commensurate with their experience and expertise.

7. Can You Get Straightforward Advice About the Options that You Have Available?

Along with getting straightforward information about pricing, you should also be able to get straightforward advice about the options you have available. Qualified 1031 exchange facilitators earn their fees by managing exchange funds and assisting with the exchange process. If a facilitator seems to be hiding the ball until you pay a fee, this is probably a sign that you should talk to someone else.

8. Is the Advice You Receive Custom-Tailored to Your Specific Investment Property (or Properties) and Investment Goals?

When you work with a 1031 exchange facilitator, you should be able to obtain advice that is custom-tailored to your specific circumstances and investment goals. Consultation is an important part of the process; and, if you rush into a transaction without a clear understanding of the options you have available and the potential tax and investment implications of each, you could end up losing out on tax deferral for a portion (and perhaps a substantial portion) of your exchange funds.

9. Is the 1031 Exchange Facilitator Ready to Assist You Immediately? Will You Be Able to Get in Touch When You Have Questions?

Far too often, 1031 exchange facilitators talk a good game during the sales process, and then they go silent once an investor has signed an exchange agreement to retain their services. The facilitator you choose should be ready to assist you immediately (if you are prepared to move forward immediately) and should be available to answer your questions throughout the process.

10. Do You Feel Confident and Comfortable Moving Forward?

Ultimately, one of the most important factors to consider when choosing a 1031 exchange facilitator is whether you feel confident and comfortable moving forward. Failing to properly conduct a 1031 exchange involving investment property can have not only adverse financial consequences, but potentially other adverse consequences as well. The facilitator you choose should help you remain compliant and leverage the benefits of Section 1031 to your advantage—not put you at risk.

The Importance of Choosing a Qualified 1031 Exchange Facilitator

Choosing a qualified 1031 exchange facilitator is important for several reasons. The laws and regulations that govern 1031 exchanges change from time to time, and it takes an experienced exchange facilitator to remain abreast of changes in the law.

For example, one of the most recent changes in the laws governing 1031 exchanges was elimination of like-kind exchange treatment for transactions involving personal property. However, if you search for information about 1031 exchanges online, you will still find websites stating that you can exchange personal property without incurring federal tax liability under Section 1031.

Additionally, a change that hasn’t been made is to cap the indefinite tax deferral available for like-kind exchanges involving investment property under Section 1031. While this has been proposed several times, this proposal has gained traction in Congress. Yet, some unscrupulous entities and individuals may tell you that you need to act quickly to avoid losing out on potential tax benefits under Section 1031. To be clear, under current law, if you engage a qualified 1031 exchange facilitator, all exchange funds can qualify for indefinite tax deferral.

When you engage a qualified 1031 exchange facilitator, you should be able to enter into an exchange agreement that clearly outlines the terms of your engagement. This includes the services the facilitator will provide and the fees you will have to pay. If you have any concerns about whether a 1031 exchange facilitator is qualified, is being transparent or has your best interests in mind, there are better options available.

What Are the Qualifications for Becoming a 1031 Exchange Facilitator?

Technically, the qualifications for becoming a 1031 exchange facilitator are minimal. Anyone who has not been classified as a “disqualified person” by the IRS is eligible to serve as an exchange facilitator under federal law. While some states have adopted licensing and insurance requirements, these requirements are not particularly onerous.

However, qualifying to serve as a 1031 exchange facilitator and being truly qualified to assist clients with conducting 1031 exchanges are different matters entirely.

Section 1031 of the Internal Revenue Code is complex; and, as noted above, the rules that govern like-kind exchanges occasionally change. As a result, being truly qualified to assist clients with conducting 1031 exchanges requires a clear, comprehensive and up-to-date understanding of the law. When you are seeking to defer substantial federal tax liability—and potentially do so indefinitely—you need to be confident not only that you are maintaining strict compliance with the Internal Revenue Code, but also that you have the documentation you need to demonstrate your compliance to the IRS if necessary.

When we assist our clients with acquiring replacement properties and securing tax deferral under Section 1031, we rely on the insights we have gained from decades of experience. We are confident in our ability to assist our clients, and this is the confidence you need when preparing to conduct a 1031 exchange.

Contact Us to Learn More About 1031 National Services

1031 National Services is an attorney-owned 1031 exchange facilitator that has been providing like-kind exchange services to taxpayers for nearly 30 years. If you need a facilitator or qualified intermediary for a like-kind exchange, we invite you to contact us for more information. To speak with one of our attorney-owners in confidence, call or tell us how we can help online today.