What You Need to Know about 1031 Exchange

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Article by: Whitney Brennan

1031 tax deferred exchanges provide for investors to increase their net worth, and also allow real estate agents to increase their repeat business. Conversely, by not understanding a few key exchange concepts, investors may be missing out on great investment opportunities and real estate agents often can unknowingly incur increased liability. We have provided answers below to the questions frequently asked by investors and real estate professionals.

When should the Intermediary be contacted?

As soon as the contract is signed. Most Qualified Intermediaries, do not charge a cancellation fee if the transaction does not close.

.What language should be added to the purchase and sale agreement?

The verbiage below is satisfactory in establishing the Exchangers intent to perform a tax deferred exchange and releases the other parties from costs or liabilities as a result of the exchange. This verbiage can also be found on our website and business cards:

It is the intent of the buyer/seller to effect a 1031 tax deferred exchange which will not delay the closing or cause additional costs to the seller/buyer. The buyer’s/seller’s rights under this agreement may be assigned by NCS Exchange Professionals. Seller/Buyer agrees to cooperate with these rights and with NCS Exchange Professionals in the manner necessary to complete this exchange.

What should be done so I do not incur a potential additional liability?

Every time you are listing a property that may have been held for investment purposes, we recommend that the property owner talk to their legal and/or tax advisor about the benefits of a 1031 exchange. It is also wise to contact an experienced Qualified Intermediary. Exchanges have been a part of the tax code since 1921. Especially if you are a real estate agent, you can’t afford to say, “I don’t know about exchanges because I specialize in residential.”

Can exchanges be set up at the last minute?

Yes, as long as the transaction has not closed. Most Exchange Professionals can successfully convert a sale into an exchange. Documents can be prepared and faxed to the title company within an hour if necessary to convert your sale to an exchange.

This information is not intended to replace qualified legal and/or tax advisors. Every taxpayer should review their specific transaction with their own legal and/or tax counsel.

Comments on this article

Comments by Theresa
Thanks for covering some of the details that I haven\'t found elsewhere. That was useful information. I look forward to reading more of your advice.

Comments by Wendy
Great article

Comments by Bob
I found the material to be very informative!

Comments by Gabrielle\' Ballew
Great Article!

Comments by Tamara
Nice and simple Q & A.

Comments by Bill
Vital info for the real estate investor AND realtor.

Comments by Robert Johnson
The information was too basic and was not helpful

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