For those of you contemplating a 1031-exchange to defer capital-gains taxes, the best way to avoid problems is to consult with experienced advisers, tax professionals and a good Exchange Accommodator, also known as a Qualified Intermediary, or “Q I”.
Nevertheless, it’s always good to know the biggest pitfalls on your path, even when you have a great guide.
The first mistake is failing to instruct your escrow agent to pay the proceeds of your sale to a QI. Receiving the money yourself will kill your exchange before it starts.
Second, failing to identify a replacement property within 45 days will automatically blow your exchange.
Third, and related to the second pitfall, is not properly following one of the IRS identification methods, known as the Three-Property Rule, the 200% Rule and the 95% rule.
You definitely should consult with your attorney, CPA or QI to help you navigate these rules.
Fourth, not fully replacing the full value of your relinquished property—including both equity and debt—will result in at least a partial failure of an otherwise fully-deferred exchange.
Finally, not working with a qualified investment professional can create worse results than a big tax bill.
For more information, please give 1031 Capital Solutions a call today. Thank you.
This information is for educational purposes only and does not constitute direct investment advice or a direct offer to buy or sell an investment, and is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. Because investor situations and objectives vary, this information is not intended to indicate suitability for any particular investor. The views of this material are those solely of the author and do not necessarily represent the views of their affiliates.
Investing in real estate and 1031 exchange replacement properties may involve significant risks. These risks include, but are not limited to, lack of liquidity, limited transferability, conflicts of interest, loss of entire investment principal, declining market values, tenant vacancies, and real estate fluctuations based upon a number of factors, which may include changes in interest rates, laws, operating expenses, insurance costs and tenant turnover. Investors should also understand all fees associated with a particular investment and how those fees could affect the overall performance of the investment.
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA). 1031 Capital Solutions is independent of CIS, CAM and CIA.