Learn about the importance of using a qualified 1031 exchange intermediary when conducting a like-kind exchange.
Timing is extremely important when conducting a like-kind exchange. Section 1031 of the Internal Revenue Code establishes strict time windows for securing tax deferral, and closing a sale or purchase too late or too soon can disqualify the overall transaction from like-kind exchange treatment. One way to address these timing issues is by working with a qualified 1031 exchange intermediary (sometimes referred to as a 1031 qualified facilitator, 1031 agent or 1031 exchange specialist/accommodator).
Use of a Qualified 1031 Exchange Intermediary is Required in Some Cases
Not only can working with a qualified 1031 exchange intermediary help with meeting the requirements for like-kind exchange treatment, but it is also required in some cases. For example, a common issue with 1031 exchanges involves receiving proceeds from a sale too far in advance of acquiring a like-kind property. As the IRS explains:
“One way to avoid premature receipt of cash or other proceeds is to use a qualified intermediary or other exchange facilitator to hold those proceeds until the exchange is complete. . . . You cannot act as your own facilitator. In addition, your agent (including your real estate agent or . . . attorney) cannot act as your facilitator.”
As the IRS also explains, taxpayers must be careful when selecting facilitators for their 1031 exchanges. There have been several instances of companies claiming to be qualified 1031 exchange intermediaries disappearing with taxpayers’ funds or filing for bankruptcy and failing to help taxpayers secure tax deferral. We have been serving as a qualified 1031 exchange intermediary since 1994; and, as an attorney-owned company, we hold ourselves to the highest standards of ethics and professionalism.
Understanding the Role of a Qualified 1031 Exchange Intermediary
Under Section 1031, the receipt of proceeds from a sale triggers the start of a time window for conducting a like-kind exchange. Once the time window closes, the tax deferral benefits afforded to like-kind exchanges under Section 1031 are no longer available—as any subsequent purchase is no longer considered an “exchange” of the previously-owned property.
Using a qualified 1031 exchange intermediary eliminates this issue. The intermediary holds the sale proceeds in escrow, delaying the seller’s receipt of these proceeds—and thus delaying the start of the time window for conducting a like-kind exchange. As noted in the IRS quote above, this service can only be provided by a qualified 1031 exchange intermediary. Qualified intermediaries provide several other important services as well.
For taxpayers seeking to conduct like-kind exchanges, it is important to engage a qualified 1031 exchange intermediary early in the process. If you have questions, we invite you to contact us to learn more.
Speak with 1031 National Services
For more information about when to use a qualified 1031 exchange intermediary and the services a qualified intermediary can provide, please contact us to arrange a confidential consultation with an attorney at 1031 National Services. Call or send us a message online to schedule an appointment today.