When a taxpayer engages a Qualified Intermediary (QI) or Certified Exchange Specialist® (CES) to accommodate their 1031 exchange tax deferral, they should know what to expect. This article provides an overview or roadmap for the steps of the 1031 exchange. An Internal Revenue Code (IRC) Section 1031 exchange allows the taxpayer to defer the federal and state capital gain and depreciation recapture when selling real or personal property held in the productive use of a business or investment when exchanged for property to be held in the productive use of a business or investment. Primary residences, partnership interests, indebtedness, inventory and stocks and securities are not eligible for 1031 consideration.
CPAs and attorneys advise their clients to always consider tax deferral strategies when selling and replacing their investment or property used in their businesses. Internal Revenue Code Section 1.1031 provides for the taxes triggered on the sale or real or tangible and intangible personal property to be deferred indefinitely or until the replacement property is sold. A Qualified Intermediary (QI) accommodates tax deferred 1031 exchanges. State regulations, real estate market downturn, and changes in the industry’s marketing approaches are shaping the new QI market landscape and driving 1031 exchange fees.
When considering engaging a Qualified Intermediary (QI) to accommodate a 1031 exchange there are a number of factors that should be considered.