Real estate has always been one of the most lucrative industries around the globe. In the last 5 years alone, surveys have revealed that though the increase has been slow, it’s most definitely steady. That, and even in the midst of global crises.
Instead of working out 1031s on your own, here are reasons why hiring 1031 exchange companies have been the go-to of both individual real estate brokers as well as of international big-fish agencies. And so should it be yours.
What A 1031 Exchange Company Can Do For You
1. Act As Your Representative
Contrary to what many who are new in the real estate world believe, a 1031 exchange very literally, and technically, follows the code of the Internal Revenue Services themselves. Which means that a Qualified Intermediary is necessary if you want successful returns.
These QIs will partner with you as agents who will act as mediators, and/ or as your representatives in pushing your real estate dealings on your behalf.
Remember that you’re dealing with legalities here. It isn’t simply a “business” per se (though it still very much involves financial transactions). And your QI will be dealing with other legal advisors and liaisons to conduct operations that are constitutionally astute, whilst ensuring that you legitimately profit from them as well.
They have the absolute know-how and experience of leading the proceedings, monitor whether you’re working within IRS guidelines, prepare legal paperwork, ensure that documents are filed, and other related transactions.
2. Seller Coordination And Advising
Your QI will be your go-to regarding the workings of a 1031 exchange. In several instances, a seller’s lack of knowledge about said IRS Code section is what opens doors for them to miss out on deferring certain taxes. And in the end, pay more than what they were supposed to in the first place.
Working with a QI directly implies that income tax liabilities and similar and/ or related capital gains can be reviewed and ultimately, deferred. This, and be in keeping with the rules belonging to the 1031 Exchange.
You will no longer be working blindly, so to speak. Every sale, investment and reinvestment you make on real estate can be supervised, especially they fall within the bounds of property-upon-property of a similar kind, or are of a higher value than their original rate.
Even specific categories of personal properties may be reviewed for qualification under 1031. And this can be accomplished with the help of a Qualified Intermediary.
3. Hold Funds In Escrow
Your Qualified Intermediary has the authority to ascertain you don’t unintentionally keep constructive receipts of any sale. This can be done via another intermediary party that can hold said funds instead.
The “relinquisher”, as stated by the IRS code, is not permitted to control any receipt of funds, whether directly or indirectly (you, being the “relinquisher”). This is because the moment you get your hands on one or more of these receipts, you will automatically be disqualified for a tax deferral. It will, by operation of law, render the exchange void.
According to the IRS, “constructive receipts” are income and/ or funds that are made available within the taxpayer’s account, and/ or possession.” Therefore, always think of these funds as “exchange money”, and have your QI hold them in escrow.
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