Understanding the Five Basic Rules of a 1031 Exchange: Qualified Intermediary

1031 exchange qualified intermediary

When doing a 1031 exchange, you must have a Qualified Intermediary (QI) involved in the process. A QI is an independent third-party required by the IRS to facilitate the exchange. The QI may not be the taxpayer, a lineal descendant of the exchanger, or an agent of the taxpayer. Taxpayer agents include the realtor, attorney, tax advisor, banker, CPA, and employee. Learn more about the role of the QI here.

CES® Designation

When choosing a QI, a good thing to keep in mind is choosing a QI with a Certified Exchange Specialist® (CES®) on staff. The CES® designation merits knowledge and professionalism in the 1031 exchange industry. To receive the designation, candidates must be knowledgeable of the exchange rules and ethics. They must show competency in performing the critical activities of a QI. An on-staff CES® is a great advantage when deciding which QI should complete your exchange.

The Federation of Exchange Accommodators (FEA) awards the CES® designation. The FEA is an elective continuing education program. Individuals receiving their CES® designation must pass a comprehensive examination. The examination tests the candidates on 1031 exchange laws and regulations. Candidates must meet specific work experience criteria and stay current with ongoing education. The education requirements are set by the CES® Council.

Why Choose Midland 1031

When you choose a QI that has a CES® on-staff and is an FEA member, you are choosing the best. This QI commits to the code of ethics established by the CES® and FEA. They receive up-to-date information on legislative, tax, and regulatory issues that could affect your exchange. They are the most knowledgeable exchange intermediaries to assist in your tax-deferred exchange.

Midland 1031 has served clients nationwide for nearly 30 years. We are a proud member of the FEA and have two CES® on staff. To start your 1031 exchange or to learn more, call us at 239-333-1031. Or, visit the Midland 1031 website here.

Delaware Statutory Trust (DST): A More Passive Real Estate Investing Option

Delaware Statutory Trust (DST) - A More Passive Real Estate Investing Option

Tax-deferred exchanges of investment and business-use property have been around in the United States since 1921 and have led to what is commonly known today as 1031 exchanges. A 1031 exchange allows real estate investors who hold business-use or investment property to defer capital gains taxes if another business-use or investment property of equal or greater value is purchased from the sale proceeds. These exchanges have benefitted many real estate investors over the years by freeing up capital by deferring their capital gains taxes and enabling them to invest in either more properties or properties with higher income potential.

However, real estate investing can be rather time-consuming, and not every investor can continue to commit the time it takes to invest in real estate. Additionally, real estate investors can find it difficult to go and view properties they would like to potentially exchange for their current property (or properties), which can potentially increase their risk. These factors have led to the rise in demand for another option for real estate investors to use their 1031 exchange funds more passively while still maintaining their tax deferral status on their exchange funds. This option is called a Delaware Statutory Trust (DST).

WHAT IS A DELAWARE STATUTORY TRUST?

A Delaware Statutory Trust (DST) is a vehicle in which real estate investors can participate in 1031 exchanges without being the sole owner or manager of the properties owned through the exchange. Basically, investors can purchase an interest in a DST with their exchange funds. The DST typically has a portfolio of properties with different industry concentrations (office space, student housing, healthcare, etc.). In return, DST investors get a percentage of the income that the DST properties generate, which depends upon the amount of your investment in the DST.

WHY INVEST IN A DST?

There are several advantages investors can benefit from when choosing to participate in a DST. The following are just a few of several benefits that Delaware Statutory Trust investors can experience:

  1. There are no property management responsibilities that fall on the investors. The DST sponsor handles property management decisions on behalf of the investors, contributing to the more passive nature of a DST investment.
  2. Unlike a Tenants in Common (TIC) structure, obtaining financing for the DST investment portfolio is a much simpler task, as a lender to a TIC would have to approve up to 35 different borrowers. In contrast, a lender would only have to approve one borrower in a DST, the sponsor. This benefit of the DST allows for swift financing and, subsequently, speedy access to funds for the sponsor.
  3. DST investors can enjoy limited personal liability in this investment structure. If a DST were to fail and go into bankruptcy, the most that investors usually will lose is the amount of their investment into the DST. Stipulations limit DST lenders in the trust from going after other assets of the DST investors. Because of this fact, no LLC arrangement is necessary when investing in a DST. Because no LLC is necessary, no annual state filing fees are required, which could affect an investor’s return.

Delaware Statutory Trusts can offer 1031 exchange users a more passive and diversified real estate investing option, all while not sacrificing the tax benefits given to them through the exchange process. If you are interested in identifying DSTs to invest your exchange funds in, contact your financial advisor to see if it is a right fit for you. For more information regarding 1031 exchanges, contact Midland 1031.

MIDLAND TRUST IS NOT A FIDUCIARY: Midland’s role as the custodian of self-directed retirement accounts is non-discretionary and administrative in nature. The account holder or authorized representative must direct all investment transactions and choose the account’s investment(s). Midland has no responsibility or involvement in selecting or evaluating any investment. Nothing contained herein shall be construed as investment, legal, tax, or financial advice or as a guarantee, endorsement, or certification of any investments.

Year-End 1031 Exchanges Need to Take Additional Action to Take Advantage of the Full 180 Days

Year-End 1031 Exchanges Need to Take Additional Action

A 1031 exchange is a valuable tool for real estate investors looking to shelter gains from the sale of their investment or business-use property.

1031 is a section of the tax code that essentially allows a taxpayer to defer the capital gains on the sale of investment or business-use property, provided they follow a few simple rules:

  • To entirely defer capital gains, buy property(ies) equal to or higher than the relinquished property’s value
  • Use a Qualified Intermediary
  • Purchase property that is like-kind
  • Identify replacement property(ies) within 45 days of closing on the sale of the relinquished property
  • Complete the exchange by the earlier of either the due date of the taxpayer’s tax return (including extensions) or 180 days from closing on the sale of the relinquished property

Year-End 1031 Exchanges From Mid-October to December 31

Most taxpayers automatically get the benefit of the full 180-day 1031 exchange deadline. For those beginning a year-end 1031 exchange between mid-October and December 31, additional action is needed to take advantage of the full 180 days.

If the relinquished property was transferred between October 17 and December 31, you may request an extension to file your taxes. Otherwise, the income tax return would be due April 15 (March 15 for corporate and partnership taxpayers). This date would be the deadline for closing on all replacement property, even though it is less than 180 days. If the taxpayer wants to have the full 180 days, they must request an automatic extension of time to file their return.

Taxpayers should consult with their accountant well in advance to allow ample time to have a request for extension filed on their behalf. The extension request must be filed to receive the full 180-day timeframe of exchanges started more than 180 days before the year-end.

Taxpayers should avoid filing their taxes and then filing an amended return after completing the exchange.

For more information regarding 1031 exchanges, please contact Midland 1031.

Real Estate Investors Flock to Naples for 1031 Exchanges

Naples 1031 Exchange & Real Estate IRA

Naples, Florida, is known as a sleepy retirement town that is no more. Naples boasts a robust economy and an even better real estate market. Real estate investors in Naples utilize two main strategies in their portfolios; self-directed IRAs and 1031 Exchanges. Both strategies leverage business and investment real estate to minimize taxes and maximize wealth.

NAPLES 1031 EXCHANGES

Naples investors are smart. The most popular strategy used is the 1031 Exchange. Rather than paying capital gains tax, with a 1031 exchange, all the tax is deferred. A 1031 tax-free exchange is one of the oldest tax strategies in the code. 1031s allow investors to defer taxes on the sale of their investment real estate as long as they buy real estate of equal or great value. Midland 1031 has been helping clients in Naples for over 22 years.

1031 Exchanges are the biggest real estate drivers. To complete a 1031 exchange, you need a qualified intermediary. Midland 1031 has served as a Qualified Intermediary (QI) to facilitate self-directed IRAs for clients throughout the United States for over 23 years. We facilitate exchanges nationwide and have assisted clients with thousands of exchanges. Most importantly, Midland is the only Qualified Intermediary company in Southwest Florida with two 1031 Certified Exchange Specialists® (CES®) on staff. There are fewer than 100 CES® in the United States.

WHICH NAPLES PROPERTIES QUALIFY FOR A 1031 EXCHANGE?

There are many types of 1031 exchanges, including delayed, simultaneous, reverse, and specialty. The rules are not complicated, but you need to make sure your exchange is set up correctly before selling your relinquished property.

  • Single-family homes
  • Condominiums
  • Raw land
  • Business properties
  • Multi-family properties
  • And other deeded real estate

NAPLES SELF-DIRECTED IRA INVESTMENTS

On the other hand, self-directed IRAs allow investors to diversify their portfolios with alternative assets, including investment real estate. All income and sale of IRA assets are tax-free and grow inside the retirement account. Let Midland show you how to quickly set up a self-directed IRA today and get started investing in some of the opportunities available only in Southwest Florida. Some of the other options available to invest in a self-directed IRA include private equity, hard money lending, capital markets, LLCs, precious metals, and more. Contact Midland Trust for more information regarding self-directed IRA investments.

The secret is out that all of Collier County is setting new records for real estate growth. You cannot go a day without reading about new records being set in Estero, Bonita Springs, or Golden Gate. The word is out, and people are coming. The last year’s events have changed people’s thoughts on where they want to live, and Southwest Florida is on the top of the list.

Contact our Naples 1031 exchange team today at 239-610-1031 to get your exchange started. Happy Investing!