How
to Choose a 1031 Exchange Facilitator
Government
Regulations Provide Little Protection
There are no federal regulations for 1031 exchange facilitators
and only two states have licensing and bonding requirements.
It's important that you know what to look for in order to
ensure you get the best possible exchange services for your
transaction. Don't fall victim to a poor facilitator who may:
not do an exchange because they don't know how to structure
it; not pass an IRS audit; lose the exchange funds due to
poor investing or possibly deception.
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a company and an exchange representative that: |
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Is
experienced, knowledgeable and can communicate clearly
with you, not an assistant who is just filling in a form.
The exchange process often requires you to make quick
decisions. To do this you'll want a facilitator who can
help you to clearly understand the situation and your
options. |
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Is
a full time exchange facilitator. 1031 exchanging is a
specialized area of the tax code. To best serve exchangers
a facilitator must keep up to date with tax code changes
as well as rulings. The 1031 code has a lot of gray areas
which an experienced facilitator can help you understand
as they apply to your situation. |
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Is
an active member of the Federation of Exchange Accommodators
(FEA), www.1031.org.
The national association for facilitators. This is the
industry's primary source of tax law information, education
and updates, and lobbying activities. |
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Maintains
a substantial fidelity bond for the benefit of their exchangers. |
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Offers
several options for the safe-keeping of your funds during
the transaction. |
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Provides
an estimate for services in advance. |
A 1031
Exchange Facilitator Must be Proactive to
Stay Current with 1031 Tax Code Changes
Between 1921 and 1984 the tax code regarding 1031 exchanges
involved simultaneous, two-party exchanges, in rural situations
where one farmer swapped a few acres with his neighbor. Over
time, the farmers moved into the cities, then there were apartment
house building swaps and it grew from there. The exchange
parties always did the swaps in one escrow office, on the
same day - until 1984.
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In
1984 the IRS lost a course case and Section 1031 was amended
to allow the taxpayer up to 180 days between the time
property was sold and new property acquired. |
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In
2000 "Safe Harbors" were added to define the acceptable
structures for exchange situations where the exchanger
must acquire the new property prior to having sold property,
called reverse exchanges. |
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Guidelines
were issued for the type of structure a sponsor must have
in their contractual agreement for an exchangers' purchase
of a Tenancy in Common interest to qualify as 1031 replacement
property. |
Tax laws
continue to change and evolve. Ensure your facilitator is
a full time, experienced professional who is up to date with
the code changes and can help you understand how these laws
relate to your situation.
[Capital
Gains Tax Rates] [How to Choose a 1031 Exchange Facilitator]
[Reporting a 1031 Exchange to the
IRS] [Use Real Estate to
Accumulate Wealth]
For more
information about 1031 exchanges contact
us.
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