Tips for CPAs to Advise Their Clients on 1031 Exchanges

CPAs are always looking for tax strategies that can save money for their clients. The like-kind exchange is one such strategy that can be hugely beneficial. In this article, we are going to talk about how CPAs can best advise their clients on 1031 exchanges of real estate.

1031 Considerations for Your Clients

From a tax perspective, 1031 exchanges can provide huge benefits to your clients who are looking to sell real estate. A like-kind exchange allows a taxpayer to defer capital gains tax on the sale of investment real estate, as long as the net proceeds are reinvested into a new replacement property.

If your client is looking to sell a piece of investment real estate, be sure to tell them about the 1031 exchange option and how it can save them a lot of money in capital gains taxes.

Confer with a 1031 Professional

1031 exchanges come with a lot of ins and outs that can significantly complicate matters quickly. When dealing with a 1031 exchange, it’s always a good idea to consult with a qualified intermediary who knows section 1031 top to bottom. We often work with CPAs to help them advise their clients on the best course of action with 1031 exchanges. We’d be happy to help you provide the best possible tax advice to your clients.

Exchange Your Real Estate & Defer Your Taxes

If you’re in the market to sell commercial real estate, consider a 1031 exchange to defer the capital gains taxes on your sale. The qualified intermediaries at CPEC1031 have been facilitating commercial real estate 1031 exchanges for more than two decades. We bring this level of experience to the table with every like-kind exchange we facilitate. Contact us today to learn more about our 1031 exchange services and let us help you get your like-kind real estate exchange off the ground. Our main office is located in Minneapolis, MN.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

The Importance of Involving Your CPA in your 1031 Exchange

In a 1031 exchange, when you look at a HUD closing statement there a lot of confusing facts, figures, prorations, debits and credits, etc. These items can seem foreign and unfamiliar to many taxpayers. One of the concerns that many people have is “what if there are expenses on this closing statement that I'm not allowed to pay for with my exchange funds?”

Specifically, what about the following items:

• tax prorations

• security deposits

• rent prorations

• other lender related transaction expenses

The best course of action to take is to bring in your circle of advisers before you sign the closing statement. The way you can do that is to ask the title company to provide a preliminary closing statement and circulate it to your CPA or accountant for their review and comment. If you share the closing statement with them before closing you can adapt it and make some changes. But if you wait until April 15th of the next year to give them the completed signed closing statement there's nothing anyone can do after the transaction is closed.

• Start Your 1031 Exchange: If you have questions about involving your CPA in your 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

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. In particular, anyone that’s been your agent or employee in the two years preceding the sale of the relinquished property cannot act as your QI.

So your attorney who has been your employee or your agent or your accountant is disqualified from being your 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. Sometimes taxpayers will put a clause in their exchange agreement asking the qualified intermediary to make a representation that they are in fact a qualified party acting as the QI (i.e. they’re not the agent or employee of the taxpayer). This is not a bad idea, and is something you want to make sure that you address that with your QI.

When you’re choosing a qualified intermediary for your 1031 exchange, the caveat – buyer beware, is the name of the game. Properly vetting your qualified intermediary is one of the most important steps of a 1031 exchange. Not all qualified intermediaries have insurance, fidelity bonds, or other safeguards in place to protect your funds.

• Start Your Exchange: If you have questions about who can act as your qualified intermediary, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved