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Introduction to 1031 Exchanges

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Introduction to 1031 Exchanges

Introduction to 1031 ExchangesMany investors and business owners have discovered a way to leverage their equity by deferring federal, and in most cases, state capital gains taxes by exchanging qualified, real property (relinquished property) for qualified, like kind property (replacement property).


When selecting a Qualified Intermediary, the client must feel confident that they are choosing a 1031 exchange company that has the requisite expertise, skill and commitment to providing quality service and security of the exchange funds. The first and last concern in the 1031 exchange transaction should be integrity. Are the funds secure and will the transaction be processed accurately? The IRS has not created any licensing requirements for those companies performing services as a qualified intermediary.


The lack of regulation has enabled companies to defraud taxpayers of their money and virtually disappear. As a practical matter, even a convicted felon can act as a qualified intermediary.

With the proliferation of companies advertising 1031 services it is important to find a company that has the expertise to handle the transaction. The following rules should guide taxpayers in choosing a Qualified Intermediary:

1. Go Local: Rely on your real estate agent, title agent, attorney, financial advisor or accountant to lead you to the right company in your area.


2. Avoid Internet Companies: There are companies that offer 1031 services via the internet. Common sense dictates that dealing with a website online company may work for buying retail products, but not usually for services. Most 1031 exchanges involve hundreds of thousands or millions of dollars. 1031 Exchanges create a myriad of tax and real estate issues. Look for a QI that has the skill level to complete the transaction correctly, ensure compliance with IRS regulations, work in unison with your real estate professionals, and provide safety of funds.


3. Protect Your Funds: The best way to make sure that funds are protected is to be certain that they are held in a separate account (called a “segregated” or “subrogated” account by the banking industry). The funds should be held in a separate account for each taxpayer. Capital 1031 Exchange Company uses a master/sub-escrow account for each of our taxpayers. All taxpayers receive their own account in their own name.


4. Go With Experience: Capital 1031 was established by real estate attorneys who wanted to ensure that their clients had access to the highest levels of  expertise. The founder, Steven D. Rothberg, Esquire, began performing 1031 exchanges during his tenure as counsel for a fortune 1000 company, and after a decade in the industry, decided to open a company that would be dedicated solely to 1031 exchanges, and which would ensure that each exchange file would be managed by an experienced 1031 transactional attorney.

Capital 1031 does more than hold funds. We ensure compliance with IRS regulations through proper documentation, and ensure that each of the components of the transaction is handled correctly from a 1031 exchange perspective. 1031 transactions often have a few bumps along the way. Our company works diligently to anticipate problems so that they can be addressed in advance of closing.


Introduction to 1031 Exchanges – Capital 1031 Exchange Company


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