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1031 Exchanges and Nothing But 1031 Exchanges

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#1 PeterWunsch



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Posted 23 October 2008 - 09:31 AM

Many 1031 Exchange firms are affiliated with real estate brokerages that package and sell so-called Tenant-in-Common properties. These arrangements help sellers looking to defer capital gains by providing a ready-made property in which to invest proceeds from a recent sale. You own a fractional share of a larger property and defer capital gains on the sale of your current property.

In fact, many 1031 companies, or exchange accommodators as they are sometimes called, are primarily brokerages that provide 1031 exchange services as a way to generate clients for their tenant-in-common properties, on which they make very nice commissions.

There’s nothing inherently wrong in this arrangement, but to me it means the actual details and logistics of the 1031 exchange are not the companies’ primary focus, and this can lead to trouble.

The IRS has established very strict exchange guidelines that must be followed or the exchange is invalid, subjecting the taxpayer to big tax liabilities. Missing even one seemingly small or inconsequential step can invalidate the whole exchange.

#2 Dave T

Dave T

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Posted 23 October 2008 - 11:16 AM

Tenant in Common properties are not well suited to every investor. I suspect that most of the members of this website who enter a 1031 exchange will do a forward exchange with direct deeding for both the relinquished property and for the replacement property and will not be interested in participating in a TIC investment pool.

When direct deeding, the qualified intermediary is simply an exchange escrow account agent who holds the exchange funds for the exchangor. The trust department at any bank can act as an exchange escrow account agent (i.e. a qualified intermediary) for a nominal fee. The last four exchanges I did, my bank trust department was the intermediary. The exchange funds were deposited in the bank at money market rates. The interest I earned on my exchange funds was more than the cost of the bank's QI fee.

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