Using a Qualified Intermediary: Their Role and Importance

Conducting a like-kind exchange under Section 1031 of the Internal Revenue Code (IRC) can help you achieve significant tax savings when buying and selling two (or more) pieces of real property. But, in order to achieve this tax savings, you must strictly comply with Section 1031’s requirements. This can be challenging, and to avoid making costly mistakes, it is important to work with an experienced 1031 qualified intermediary.

When you work with a qualified intermediary to complete a 1031 exchange, you can rely—or at least you should be able to rely—on your qualified intermediary to help guide you through the process. Unfortunately, there are some unscrupulous companies out there. As a result, when choosing a qualified intermediary, it is important to choose carefully.

Why It Is Necessary to Work with a 1031 Qualified Intermediary

First, we’ll talk about why it is necessary to work with a qualified intermediary when conducting a like-kind exchange under Section 1031. There are three key reasons:

1. Working with a Qualified Intermediary is Required in Some Cases

For many taxpayers, working with a qualified intermediary is a requirement to secure like-kind exchange treatment under Section 1031. If the sale of a relinquished property will result in receiving proceeds too early (i.e., more than 180 days before the taxpayer is prepared to close on a replacement property), then working with a qualified intermediary or other exchange facilitator is the only way to preserve access to the tax benefits that are available.

2. Successfully Completing a 1031 Exchange Isn’t Easy

Even when working with a qualified intermediary isn’t federally required, working with a qualified intermediary is still important for successfully completing a 1031 exchange. There are several steps in the process, and failing to take any of these steps can result in denial of like-kind exchange treatment. An experienced 1031 qualified intermediary should be able to help you execute a step-by-step plan focused on maximizing the tax benefits of your exchange.

3. You Must Meet the Strict Deadlines for Completing a 1031 Exchange

Not only must you take all of the steps required to successfully complete a 1031 exchange, but you must also take these steps by the relevant deadlines. Multiple deadlines apply, and missing any one of these deadlines—even by a single day—can disqualify your exchange from 1031 treatment. Here, too, an experienced qualified intermediary can help by lending the expertise needed to meet all of the requirements for completing a Section 1031-compliant like-kind exchange.

How To Select a Qualified Intermediary for Your 1031 Exchange

Now that you know why it is important to work with a qualified intermediary, how do you choose an intermediary to help with your 1031 exchange? Choosing carefully is more important than you might think, as the Internal Revenue Service (IRS) explains:

“Taxpayers should be wary of individuals promoting improper use of like-kind exchanges. Typically they are not tax professionals. Sales pitches may encourage taxpayers to exchange non-qualifying vacation or second homes. . . . Taxpayers may also be advised to claim an exchange despite the fact that they have taken possession of cash proceeds from the sale.”

With this in mind, here are five tips for selecting a 1031 qualified intermediary:

• Learn about the qualified intermediary’s history. How long has the qualified intermediary been providing assistance with 1031 exchanges? At 1031 National Services, we have been serving as a qualified intermediary since 1994.
• Choose an attorney-owned qualified intermediary. Attorneys are held to high ethical standards and should be intimately familiar with Section 1031’s deadlines and other requirements.
• Review the qualified intermediary’s website. Reputable qualified intermediaries will typically provide lots of free information on their websites to help you make informed decisions about your first steps.
• Ask for references. A reputable qualified intermediary should be happy to provide you with references upon request. While some may publish testimonials online, these testimonials may or may not be from real clients.
• Schedule a free consultation. A reputable qualified intermediary should also be happy to schedule a time to discuss your like-kind exchange free of charge and without obligation.

Schedule a Free Consultation at 1031 National Services

Do you have questions about working with a 1031 qualified intermediary to conduct a like-kind exchange? If so, we invite you to schedule a free, no-obligation consultation at 1031 National Services. To arrange a call at a time that is convenient for you, please call 888-530-7449 or tell us how we can contact you online today.