The 1031 Exchange Process

Since 1991, IRC § 1031 has required the use of an impartial third party to hold the proceeds from the Relinquished Property sale until the close on the Replacement Property. This third party is known as a qualified intermediary. Carlos with 1031 Advantage is an Exchange Facilitatior who works with 1031 Advantage Exchange LLC, a 1031 Exchange Qualified Intermediary.

Who Holds the Funds During the 1031 Exchange  

Not only does the qualified intermediary hold the funds during the 1031 Exchange Process, but they also help structure the exchange, prepare the exchange documentation, continuously monitor and guide the taxpayer to ensure compliance of the exchange in accordance with Section 1031 at both the state and federal level.

While there are no federal regulations governing qualified intermediaries, with the help of the Federation of Exchange Accommodators (FEA), many states started state-level requirements to uphold high professional standards for qualified intermediaries conducting exchanges in their states.

Standards for Qualified Intermediaries

The requirements can vary state to state, but typically include some or all of the following:

• Minimum bond and insurance requirements
• Registration and licensing requirements
• Investment limitations on exchanger funds
• Qualified escrow and/or trust accounts for exchange funds
• Fund withdrawal authorization requirements

The foundation of a successful 1031 exchange process is laid by Carlos Your Facilitator at 1031 Advantage and 1031 Advantage Exchange LLC, the qualified intermediary.

Do your due diligence in researching qualified intermediaries to ensure you are not only getting the best service possible, but to ensure your deferred capital gains tax will hold up above IRS review.