A 1031 exchange is a way for businesses or investors who want to sell property and also buy similar property to defer capital gains or depreciation recapture tax. For a 1031 to work, the sales proceeds must be held with a Qualified Intermediary (QI), such as NES Financial.Many people select a QI based on a recommendation from a colleague or some basic internet research without really knowing what they should be looking for. Since one of the key roles of the QI is to hold the sale proceeds between closings, one of the first questions you should really be asking is, what controls are in place for the security of the funds being held?

Let’s say you have decided to go ahead with a 1031 exchange, and the time has come to begin the process. What factors should you consider when selecting a QI?

Working with a CPA or attorney

According to IRS regulations, Qualified Intermediaries may not provide tax advice. A CPA or attorney can help you plan for the exchange and understand what you need to do. Many businesses already have established relationships with CPAs or attorneys that they trust and are comfortable using. NES Financial can work with CPAs and attorneys all across the country and are not tied to any one firm in particular.

Structuring the exchange 

There are several types of 1031 exchanges that can be structured. A 1031 forward exchange is the most common, and most QIs can only perform those. But it is not always the appropriate exchange to use. What if you need to sell your asset before buying a new one? In this case, being able to do a 1031 reverse exchange would be valuable. Unfortunately, due to the sophistication of these exchange types many QIs are not able to provide these services. NES Financial, on the other hand, has the most experience in the industry facilitating all types of exchanges. This includes forward, reverse, program, and specialty exchanges. Our expertise in this field is unrivaled. In fact, our General Counsel developed 1031 guidance during her tenure at the IRS National Office. So no exchange is too big or too complicated.

Choosing a bank

Most QIs are aligned with one bank that they use to hold exchange funds. If your preferred bank is not one of the options here, you’re forced to use whichever bank the QI uses to hold your funds. On the contrary, NES Financial has long-standing relationships with the nation’s leading banks and can work with clients to either find them the right partner or use the client’s bank of choice.

FDIC insurance only covers $250,000 of a deposit. What do you do if you have more money than that being held, and you want additional security? Due to our relationships with multiple banks, we can spread your exchange funds among several banks to provide more FDIC insurance coverage. Our 1031 Exchange Solutions provide the highest levels of security, transparency, and compliance in the industry, so you can be sure you’re getting the best service.

Don’t select a QI on a whim. The potential tax risks are significant and not worth it in the end.

Get more

What is a 1031 exchange? Find out more by downloading our 1031 Exchange Kit.

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