Section 1031 provides opportunity for deferral of taxes
A great way to add value to client relationships is to present an opportunity they may not be considering or even aware of. Cue the Internal Revenue Code Section 1031 Like-Kind Exchange. A “win-cubed” outcome is achieved by a combination of the exchanger’s improved reinvestment position, the qualified intermediary’s new-found client and your enhanced value to the client/exchanger as the person responsible for igniting the 1031 exchange spark.
While 1031 exchanges provide huge benefits in many cases, it’s crucial that your client not make the decision to participate in a 1031 exchange over a conversation with you alone, but rather seeks input from a tax professional and, perhaps, legal counsel. You want your client to remember you as the person who encouraged him to explore a wealth building and cash-flow enhancing tool, not as the one who got him into something he later came to regret!
Any reputable qualified intermediary, aka one of the many firms or individuals around the country that facilitate nearly all 1031 exchanges, will advise the same to their potential clients: run your exchange scenario by your tax pro and with their blessing, we’re happy to proceed.
Aside from this central, guiding principle, following are some key aspects of Section 1031 that you, as an exchanger’s agent, adviser, lender or friend are well served to be aware of. The exchanger must establish his 1031 exchange before closing on the earliest of any exchange property to be relinquished or acquired. A like-kind exchange is invalid if not in place, with written notice provided to the other party(ies) involved, prior to the exchanger’s first related closing. Warning: The earlier of transfer of use, payment or deed/title signifies “closing” under Section 1031.
To read the article in its entirety as published in the Colorado Real Estate Journal please click here.