When you’re doing a 1031 exchange, you cannot expect your qualified intermediary to do absolutely everything for you during the process. There are other professional advisors that are there to help you do other things. This is why you need to assemble a 1031 exchange team to help you through the process.
For example, you need to have a good title company to do the property closings and put the window dressing on the settlement statements to articulate what’s going on with the exchange.
Another part of your team is your real estate agent, who can help facilitate the smooth transition of your property. When you negotiate the purchase and sale agreements, we often suggest that you include a strong cooperation clause in the contract that explains you are conducting a 1031 exchange. If you don’t have this provision in your contract, the buyer may use that as an opportunity to try to get a concession.
You also need an accountant. At the end of the 1031 exchange process, you need to submit form 8824 to the IRS. This is not an easy worksheet to fill out, particularly when you are dealing with multiple relinquished properties. Your accountant is going to report how the puzzle pieces fit together to form your 1031 exchange. The IRS is going to know that you sold a relinquished property because when you dispose of a relinquished property, the title company closing the transaction must ping the IRS with a 1099-S. Form 8824 connects the dots between the property that was sold and the property that was purchased.
Your banker also plays an integral role in a 1031 exchange. If you’re trying to lever up with your 1031 exchange, having a nimble, creative banker can be very helpful. A good banker can help ensure that you’re redeploying all of your equity in a 1031 exchange. You do not want there to be a settlement statement that shows cash to buyer because that would result in you receiving taxable boot.
Having an attorney that understands the ins and outs of a 1031 exchange is incredibly important. It’s essential to have someone to provide counsel throughout the exchange process.
Finally, it’s important to work with a qualified intermediary who can prepare the paperwork and conduct the 1031 exchange itself. A qualified intermediary is authorized under the Treasury Regulations and is the only person on your 1031 exchange team who is not deemed to be the agent of the taxpayer conducting the exchange. This is important because your qualified intermediary cannot be a related party. They must be a neutral and unbeholden party to the taxpayer.
1031 Exchanges for Capital Gains Tax Deferral
A 1031 exchange is the quickest way to capital gains tax deferral when selling qualifying real estate. Learn more about the tax-saving benefits of section 1031 of the Internal Revenue Code by contacting the team of qualified intermediaries at CPEC1031, LLC. With more than twenty years of experience, we can guide you through each stage of the 1031 exchange process, making sure you have all your bases covered. Contact us today at our Twin Cities office, which is located in downtown Minneapolis and get your 1031 exchange up and running!
Defer the tax. Maximize your gain.
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