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5 factors to consider when selecting a 1031 Qualified Intermediary

Real estate continues to be a hot market, making now the perfect time to decide whether or not to buy or sell. No matter which you choose, using a 1031 exchange can help you defer taxes on the sale of your property.

The 1031 safe harbor regulations require the use of a 1031 qualified intermediary (QI) to create an exchange from what is typically a sale of property by the taxpayer to a third party, followed by a purchase of “like kind” property by the taxpayer from yet another third party. When selecting your QI, it is crucial to conduct due diligence and thoroughly examine their operations.

Some factors to consider before selecting a 1031 QI are:

1) Real estate experience. Does the QI have the necessary experience and expertise required to handle a 1031 real estate exchange? There are many variations of 1031 exchanges (forward, reverse, program), and it is important to choose a QI with the knowledge and capability to facilitate even the most difficult exchanges. It is also crucial that you are able to trust your QI. This may sound like a no-brainer but tends to be overlooked more often than not.

2) Compliance examinations. Does the QI have its processes subjected to annual compliance examinations, such as SSAE 16? This is important because submitting to and completing these annual examinations demonstrates that the QI is committed to providing the most secure and compliant 1031 exchanges for you and your business.

3) Transactional transparency. Do you have access to view your exchange funds at any point in time? For many 1031 exchanges, the exchanger is not sure where their money is being held. This may sound hard to believe but unfortunately happens more often than you would think. Make sure to select a QI that enables full transparency of account activity 24/7.

4) Funds security. Is your exchange being held in an FDIC insured account for maximum security? A good QI should ensure that your funds are held at top tier banks.

5) Independent QI status. Is your QI free to work with any bank or is it limited to working with a specific one? Sometimes your preferred bank may not be the same as the QI’s. Having a QI with the freedom to work with multiple banking partners is a positive in these situations so you’re not tied down.

While there are plenty of 1031 QIs out there, many of them would not be able to answer yes to all of these questions. NES Financial, on the other hand, can. We have been leading the way in terms of best practices and standards for QIs for the last two decades, with 1031 Exchange Solutions that deliver the utmost levels of security, transparency, and compliance.

Our team of experts is well versed in the rules and regulations for all types of 1031 exchanges, including forwards, reverses, programs, and specialty exchanges. 1031 exchanges are a proven strategy for saving taxes and maximizing the reinvestment of capital. Following best practices when selecting a QI can make the difference between a successful and unsuccessful 1031 exchange.

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

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