1031 FAQs for Real Estate Professionals
Is there additional work for the real estate professional when a 1031 exchange is involved?
Other than suggesting the 1031 exchange and putting your client in touch with 1031 CORP., there is nothing more you would have to do in a 1031 exchange. Of course, you have to sell your client’s relinquished property and help him or her find a replacement property but that is what you do best!
What is the role of the Qualified Intermediary (QI) in an exchange?
The QI acts as middleman in the exchange in accordance with one of the safe harbors of the 1031 regulations. Some of the functions the QI serves include:
- Acquires and conveys both properties through a paper assignment
- Prepares necessary exchange documentation
- Controls exchange proceeds
- Coordinates details with closing agents
- Keeps your client aware of time deadlines
Why should I recommend a 1031 exchange?
You are in the ideal position to recommend an exchange when appropriate. Often times the Seller is unaware of 1031 exchanges and misses the opportunity to buy replacement property with pre-tax dollars. Suggest a 1031 exchange any time your Seller does not live in the property and you may be able to help your Seller defer significant gains while earning a great referral source.
Does the 1031 exchange affect my commission?
1031 CORP. charges a nominal exchange fee but it does not affect your real estate commission and it will be shown on the closing statement as always.
When should I get 1031 CORP. involved?
The knowledgeable Exchange Team of 1031 CORP. is always available to answer questions but does not have to be engaged until a sales agreement has been signed. Of course you can contact anyone at 1031 CORP. any time with questions.
When is it too late to initiate a 1031 exchange?
You can contact 1031 CORP. as late as during the closing to initiate an exchange and we
can prepare the required documents and fax or e-mail them to the closing agent within minutes. However, once closing has occurred, it is too late to initiate the exchange and it will
be a taxable sale for your client.
Does a 1031 exchange delay closing?
Absolutely not! 1031 CORP. provides the closing agent with detailed instructions to ensure the transaction is documented properly. While an Exchange Officer at 1031 CORP. must review and sign the Closing Statement, we typically do that before closing to avoid any delays. We also make sure the exchange funds are transmitted via wire to the closing agent prior to the closing of your client’s replacement property.
What does 1031 CORP. need to initiate the 1031 exchange?
Our Exchange Officer will need a copy of the signed sales agreement, contact information for your client and the closing details. Once we have this information, the exchange documents will be prepared and instructions provided to the closing agent. It is a very simple process.
If I did not include 1031 language in the sales agreement, can my client still do an exchange?
Absolutely! 1031 CORP. will prepare and have an assignment agreement signed at closing.
Does a 1031 exchange affect the Buyer of the property my client is selling or the Seller of the property my client is buying?
While the regulations require that the Buyer of the old property and the Seller of the new property are notified of your client’s intent to complete a 1031 exchange and that your client’s rights (but not obligations) in the respective sales agreements are assigned to 1031 CORP., we do not need their cooperation.
Does 1031 CORP. handle the closing?
No, 1031 CORP. is not the closing agent. Closing is handled by an attorney or a title/escrow company just as usual.
Can my client sign the sales agreement for a new property before we have sold the old property?
There is no reason you cannot sign the sales agreement for the replacement property first. The dates the sales agreements are signed are irrelevant. However, it is imperative that the actual conveyance of the relinquished property occurs before your client acquires the replacement property.
What if we cannot coordinate the closings so the relinquished property sale occurs before the replacement property is acquired?
It is possible to do what is called a reverse exchange but this should only be done as a last resort. Contact 1031 CORP. for additional information on this structure.
If my client is selling a residential property, can he buy a commercial property?
Any type of real estate qualifies for tax deferral under Section 1031 as long as it is held for business use or investment. A duplex can be exchanged for vacant land or three condos located in three different cities can be exchanged for a beach front rental.
Is there anything the real estate professional must bring to closing for the 1031 exchange?
No, everything that needs to be taken care of at closing for the 1031 exchange will be handled by the closing agent. The closing agent will receive instructions from 1031 CORP. well in advance of closing and we will review them prior to closing to ensure a smooth closing for all parties.
I’m hesitant to suggest a 1031 exchange because I don’t know enough about it. What should I do?
As a real estate professional, you do not need to be an expert on 1031 exchanges but it is prudent to know how to recognize when an exchange might be advisable. An exchange works on virtually any real estate asset other than a primary residence or vacation/second home. The 1031 CORP. Exchange Team is always available to answer your questions throughout the exchange process, discussed a potential transaction or schedule a conference call or consultation with you and/or your client.