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1031 Exchanges: A practice for generalists or specialists?

In most industries, there are generalists and there are specialists and each has its own place. Most of us hire generalists when we need something done that is at an exploratory stage, is considered routine, or is relatively low risk. On the other hand, when we require specialized experience or are dealing with something very important or complex, we seek out a specialist. There are countless examples of this in our daily lives.

When I needed knee surgery to repair an old sports injury I went to an orthoscopic surgeon, not my family doctor and certainly not my dentist. More recently, when the transmission on my car began to fail, I sought out a transmission specialist, not a general repair shop and certainly not a brake shop. I think most of us would do the same.

Given this logic, why do so many people trust their 1031 exchanges to tax generalists, or worse, to companies that specialize in something else altogether? For most people, decisions that involve money are the most important, especially hard earned money that may have taken years or even a lifetime to accumulate. 1031 exchanges require a high degree of specialization and experience. It seems that most things that have to do with the Internal Revenue Code are complicated, and 1031 exchanges are certainly no exception.

Not all 1031 exchanges can be treated the same way. For example, exchanging aircraft is a lot different than exchanging real estate. Forward Exchanges and Reverse Exchanges are handled very differently. 1031 exchanges can be designed as a single transaction, or they can continue in programmatic fashion. The implications of doing an exchange incorrectly or selecting the wrong provider can be devastating. Failed exchanges have cost investors their life savings and crippled companies with unexpected tax bills.  And don’t forget how many innocent exchangers have been victimized by the unscrupulous Qualified Intermediaries.

Yet despite all of these risks, I still see exchangers selecting Qualified Intermediaries with other focuses like banks, title companies, or real estate attorneys to facilitate their exchanges. For these potential providers, 1031 exchanges are an added accommodation. The bank is really looking for deposits; the title company wants to sell title insurance; and so on. As a result, none of them invest the time and resources to the exchange practice that an independent Qualified Intermediary does. Why risk something so important by betting on a firm for whom 1031 is not the primary focus? Hire a 1031 exchange specialist – an independent Qualified Intermediary like NES Financial – for your next exchange.

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If you like this post, get more information on NES Financial’s 1031 Exchange Solutions by downloading our 1031 Exchange Kit.

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