How to Choose a 1031 Exchange Facilitator

Government Regulations Provide Little Protection

There are no federal regulations for 1031 exchange facilitators and only two states have licensing and bonding requirements. It's important that you know what to look for in order to ensure you get the best possible exchange services for your transaction. Don't fall victim to a poor facilitator who may: not do an exchange because they don't know how to structure it; not pass an IRS audit; lose the exchange funds due to poor investing or possibly deception.

Choose a company and an exchange representative that:

• Is experienced, knowledgeable and can communicate clearly with you, not an assistant who is just filling in a form. The exchange process often requires you to make quick decisions. To do this you'll want a facilitator who can help you to clearly understand the situation and your options.
  
  
• Is a full time exchange facilitator. 1031 exchanging is a specialized area of the tax code. To best serve exchangers a facilitator must keep up to date with tax code changes as well as rulings. The 1031 code has a lot of gray areas which an experienced facilitator can help you understand as they apply to your situation.
  
  
• Is an active member of the Federation of Exchange Accommodators (FEA), www.1031.org. The national association for facilitators. This is the industry's primary source of tax law information, education and updates, and lobbying activities.
  
  
• Maintains a substantial fidelity bond for the benefit of their exchangers.
  
  
• Offers several options for the safe-keeping of your funds during the transaction.
  
  
• Provides an estimate for services in advance.

A 1031 Exchange Facilitator Must be Proactive to Stay Current with 1031 Tax Code Changes

Between 1921 and 1984 the tax code regarding 1031 exchanges involved simultaneous, two-party exchanges, in rural situations where one farmer swapped a few acres with his neighbor. Over time, the farmers moved into the cities, then there were apartment house building swaps and it grew from there. The exchange parties always did the swaps in one escrow office, on the same day - until 1984.

• In 1984 the IRS lost a course case and Section 1031 was amended to allow the taxpayer up to 180 days between the time property was sold and new property acquired.
  
  
• In 2000 "Safe Harbors" were added to define the acceptable structures for exchange situations where the exchanger must acquire the new property prior to having sold property, called reverse exchanges.
  
  
• Guidelines were issued for the type of structure a sponsor must have in their contractual agreement for an exchangers' purchase of a Tenancy in Common interest to qualify as 1031 replacement property.

Tax laws continue to change and evolve. Ensure your facilitator is a full time, experienced professional who is up to date with the code changes and can help you understand how these laws relate to your situation.

For more information about 1031 exchanges contact us.