1031 services represent the accommodation of 1031 tax deferred exchanges. The Internal Revenue Code (IRC) Section 1031 states “no gain or loss is recognized when property held for productive use in a trade, business or investment is exchanged for property held for productive use in a trade, business or investment.” The 1031 exchange defers the recognized gain or capital gains tax due until the sale of the replacement property. Another 1031 exchange can be initiated as often as needed.
Qualified Intermediary
A Qualified Intermediary (QI) is required to be used to perform the 1031 services except in a “pure exchange” when both the seller and the buyer are acquiring each other’s property. The QI has two primary functions. To document the exchange in accordance with current state and federal requirements and hold the funds in an escrow account once again according to the laws of the state.
Disqualified Persons
Not everyone can be a QI. This subset is known as disqualified persons and is recognized as anyone or company that has been engaged by the exchangor within the two year period prior to the beginning of the 1031 exchange. This includes and is not limited to the exchangor’s lawyer, CPA, Realtor, financial advisor, family members (siblings, spouse, ancestors, and lineal descendants), trust and corporate related entities. For more information see Internal Revenue Code Section 267(b). There are exceptions such as financial institutions and attorneys providing title closing services.
A QI is typically but not limited to an attorney, CPA, title or independent company facilitating 1031 exchanges for real and personal property held by individuals and companies, both foreign and domestic that are subject to federal tax reporting. The QI does not provide tax advice. The Certified Exchange Specialist(r) designation indicates the individual QI has provided 1031 consultations for three years, passed a rigourous board exam and participated in twenty hours of continued education including an ethics class every two years. A membership with the Federation of Exchange Accommodators (FEA) requires an annual criminal background check and yearly commitment to follow a Code of Ethics and Conduct. If the FEA finds the QI in violation of the Ethics Policy, the QI’s membership is revoked.
Education
In addition to accommodating 1031 exchanges, the QI provides education through a variety of channels including Realtor Associations, Continued Education classes for attorneys, CPAs and Finanacial Planners. Personally, I write articles based upon questions asked and consultations with prospective clients. On the Atlas 1031 website, thirteen complimentary epapers and ebooks are available for download including:
