What is a 1031 intermediary?

A qualified intermediary (QI) must facilitate a 1031 exchange. The QI is a person who holds funds from the relinquished property and uses them to acquire the new replacement property. These funds never come into contact with the property owner, who is involved in the 1031, per the IRS 1031 rules.

What does a qualified intermediary do in a 1031 exchange?

The Qualified Intermediary for your exchange. Under Section 1031 of the Internal Revenue Code (IRC), owners of business or investment properties, through the use of a Qualified Intermediary, can sell one property and purchase a similar or “like-kind” property while deferring capital gains.

Do I have to use an intermediary for a 1031 exchange? The Use of a Qualified Intermediary is Required That requirement eliminates the ability of an investor to complete a 1031 exchange without assistance. The qualified intermediary cannot be the investor and cannot work for, be related to, married to, or an agent of the investor.

What is a 1031 exchange and how does it work?

A 1031 exchange gets its name from Section 1031 of the U.S. Internal Revenue Code, which allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.

How does a qualified intermediary make money?

Interest income: How a qualified intermediary makes most of their money. … The bulk of a qualified intermediary’s revenue comes in the form of interest income. When you complete a 1031 exchange, the proceeds from the sale of the original property are held by the QI until you buy the replacement property.

Can an attorney be a Qualified Intermediary?

In some jurisdictions, an attorney can be designated as your Qualified Intermediary, but it can’t be your regular legal counsel — IRS rules state that legal counsel can only act as a Qualified Intermediary if he or she has not performed services for the client in the prior two years unless the work is related to a …

How much does a Qualified Intermediary charge?

Institutional Qualified Intermediaries typically charge set-up and administrative fees that cover the sale of the relinquished property and the purchase of the first replacement property, which tend to range between $800 to $1,200 for the initial transaction.

Can you live in a 1031 exchange property?

Property that you hold primarily for personal use cannot be utilized in a 1031 exchange. … The general rule is that you should not be living in any property that you wish to exchange with a 1031 transaction – though there are some exceptions to that rule.

What is the most common type of 1031 exchange?

The delayed exchange is the most common form of 1031 exchanges. A delayed 1031 exchange occurs when the business or investor relinquishes the initial property before identifying and acquiring the replacement property.

Who qualifies as a Qualified Intermediary for 1031 exchange?

A qualified intermediary (QI) must facilitate a 1031 exchange. The QI is a person who holds funds from the relinquished property and uses them to acquire the new replacement property. These funds never come into contact with the property owner, who is involved in the 1031, per the IRS 1031 rules.

How long must you hold 1031 property?

There’s no set minimum holding period for a property used in a 1031 exchange. The only requirement is that you owned the property with the intention to hold it as an investment.

How long do you have to identify a property in a 1031 exchange?

Internal Revenue Code Internal Revenue Code (IRC) §1031 delayed exchange, commonly known as a 1031 exchange or tax deferred exchange, a taxpayer has 45 days from the date of sale of the relinquished property to identify potential replacement property. This 45-day window is known as the identification period.

Can you 1031 a primary residence?

A 1031 exchange generally only involves investment properties. Your primary residence isn’t typically eligible for a 1031 exchange. Even a second home that you live in some of the time is ineligible if you don’t treat it as an investment property for tax purposes.

How do I get a qualified intermediary?

A CPA with 1031 exchange experience, a real estate attorney, or a reputable title company can be good sources for referrals to qualified intermediary services. Another excellent source for finding a knowledgeable qualified intermediary is through the Federation of Exchange Accommodators (FEA).

Do I need a lawyer for a 1031 exchange?

The IRS statute requires that you use a qualified intermediary (QI) to perform your 1031 exchange. While it is possible for an attorney to provide this service, it doesn’t have to be an attorney and it can’t be an attorney you have utilized for any other matters.

Can a title company be a qualified intermediary?

A title company, because it is not considered a prohibited agent, can act as a Qualified Intermediary in a 1031 exchange in conjunction with its ability to serve as an escrow officer throughout the transaction.

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