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The IRS Requires Investment Property Owners Planni

The IRS Requires Investment Property Owners Planning

The IRS requires investment property owners planning a 1031 exchange to engage the services of a Qualified Intermediary (also called accommodator) throughout the exchange process. A Qualified Intermediary is a person with the training and experience necessary to handle all the facilitative and administrative aspects of your 1031 exchange transaction. You can find out more about 1031 exchange regulations here.

1031 Exchanges That Do Not Require an Accommodator There are two exceptions where exchangers can proceed with the 1031 exchange without a Qualified Intermediary.These kinds of 1031 exchanges are pretty rare.

1031 Exchanges That Require an Accommodator

The Department of Treasury Regulations (Section 1.1031) makes a Qualified Intermediary mandatory for delayed 1031 exchanges. Delayed 1031 exchanges are the most common kind. Usually, the 1031 exchange occurs over an extended period (about 180 days) because it involves a series of complex transactions. Usually, when the exchanger relinquishes their investment property to the buyer, it may take them some time to identify the property they wish to acquire in exchange. The IRS requires such 1031 exchanges to be overseen by an accommodator.

Who is Legally Barred From Acting as an Accommodator?

The law prevents a conflict of interest by preventing certain people from acting as accommodators. You cannot act as your own accommodator, nor can you hire anyone related to you or with whom you have had a financial relationship within two years before the close of escrow of the 1031 exchange.

As a result, you cannot hire your current attorneys, real estate agents or certified public accountants. A 1031 accommodator carries out a lot of sensitive functions. Some states exercise other restrictions that ensure all accommodators are working within the confines of the law through licensing.

Why You Need a Qualified Intermediary For Your 1031 Exchange

Inventors should be extremely diligent when choosing a Qualified Intermediary. Ensure you inquire about their qualifications, experience and whether they are licensed and insured.  The right Qualified Intermediary will need to be up to par with all new legal developments to provide efficient advice and guidance. Once you choose the right accommodator, you do not have to worry about the risk of having your 1031 exchange disqualified. There are several mistakes or oversights that can end up costing you a large amount in capital gains tax should the 1031 exchange not succeed.

Accommodators Ensure Legal Compliance We have already highlighted the importance of complying with all the legal requirements for 1031 exchanges. Your accommodator will worry about the legal obstacles, so you do not have to.

Accommodator Holds 1031 Exchange Funds in Escrow

Once you sell the investment property you intend to exchange, you cannot receive the proceeds from the sale. Instead, your accommodator receives, holds and safeguards the funds to protect you from constructive receipt, which could invalidate your 1031 exchange. After you identify the building you would like to acquire in the exchange, the accommodator will transfer the payment to the seller and facilitate the transfer of title to you.

Accommodators Guarantee Correct Documentation

Failure to observe all legal requirements exposes you to serious tax liabilities should the 1031 exchange be disqualified.  1031 exchanges are an incredible investment tool that will help you preserve and build your wealth. They will allow you to defer depreciation recapture and capital gain taxes on an investment property. The 1031 exchange is also a great way to trade up or add properties to your portfolio. Hiring the right accommodator is the best way to ensure a successful 1031 exchange.

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