Realtors can play a valuable role in property transactions, especially when it comes to navigating the complexities of a 1031 exchange.
In this scenario, a 1031 exchange realtor offers guidance, solutions, and resources that increase your chances of a successful like-kind swap. However, it’s important to note that realtors do not provide tax or legal advice. Investors should always consult with a Qualified Intermediary, attorney, or tax advisor to ensure compliance with IRS rules.
What is the role of this type of realtor? What do they do during the sale or acquisition of a property? Below, Realized 1031 has shared an article to provide insights into these questions. Keep reading to learn more.
What Is a 1031 Exchange Realtor?
In a traditional real estate transaction, a realtor is an agent who is an active member of the National Association of Realtors (NAR). These professionals follow a distinct code of ethics and are committed to helping clients as they sell or buy property. A 1031 exchange realtor takes it one step further by offering specialized services for like-kind exchanges. These experts help with the following aspects of this transaction.
- Helping clients understand general 1031 exchange requirements, such as like-kind property requirements and reinvestment timelines
- Coordinating with a qualified intermediary to ensure an arm’s length transaction on the investor’s side
- Assisting with identifying possible replacement properties that match the requirements of 1031 exchanges while aligning with the investor’s goals
The Role of a Realtor in a Property Sale
The first step in a 1031 exchange is the sale of the relinquished property. At this stage, engaging with a 1031 exchange realtor is critical as they help with the following tasks.
Help in Determining if Your Property Is Qualified
The IRS has strict regulations regarding what does and does not qualify for a like-kind exchange. Primarily, your property should have been held for investment or business use. While this rule may seem straightforward, there are certain requirements for properties like second homes or vacation houses. A 1031 exchange realtor helps you determine if the property you want to sell satisfies these unique requirements so that you can leverage the tax deferral benefits of the exchange.
Assessment of Market Conditions and Setting the Right Price
Just like a regular agent, a 1031 exchange realtor helps you determine if now is the right time to sell the property. Plus, they help you assign the right selling price for the property, accounting for current market conditions and demand. This way, you can set a value that makes the property attractive to buyers while ensuring that you still earn from the sale.
Marketing to Potential Buyers
Your 1031 exchange realtor will also assist with the marketing aspect of the sale, taking steps such as the following.
- Staging the property for marketing videos and photos.
- Listing the home or establishment in the appropriate platforms to maximize reach.
- Negotiating offers on your behalf to increase the potential of maximum profit.
Coordinating With the Qualified Intermediary
Your 1031 exchange realtor works with your QI to meet IRS guidelines. Their collaboration becomes critical during closing, with the realtor facilitating the transfer of funds to ensure that you have no direct control of the proceeds.
The Role of a Realtor in Property Acquisition
After the sale of your relinquished property, the 1031 exchange realtor can assist with the next stage of the like-kind exchange: identifying and acquiring the replacement property.
Phase 1: Identifying a Suitable Replacement Property
Within the 180-day timeframe of 1031 exchanges, the first 45 days are dedicated to identifying the replacement property. Your realtor can assist in various ways during this phase. First, they can help you find possible replacement properties through their network. This is critical as some commercial properties may be off-market or inaccessible to the general public.
Your realtor will also help you assess each opportunity to determine which ones align closely with your goals. They can help you evaluate factors like the following to get a clearer picture of the identified properties.
- Cash flow potential
- Appreciation
- Tenant quality and lease agreements
- Market conditions
Finally, your realtor will help you provide the information required by the IRS to officially “identify” each property. These details will be submitted to your qualified intermediary, marking the successful completion of the first phase.
Phase 2: Acquiring the Replacement Property
Your realtor also plays a role in the negotiation and closing stage of the 1031 exchange. They can assist in matters like due diligence, ensuring that you conduct inspections and financial analysis to mitigate risks. They also help with structuring the transaction properly, since the purchase price and financing must be structured to match or exceed the relinquished property’s sale price. Finally, your realtor helps you close the transaction within the 180-day deadline, allowing you to maintain your tax-deferred status.
The Realtor’s Role in Delaware Statutory Trusts
A Delaware Statutory Trust (or DST) is an alternative strategy where you exchange the proceeds of your property sale for fractional interests in the DST. This investment vehicle allows you to enjoy passive income and hands-off involvement.
Your realtor may have relationships with advisors, or you can reach out to Realized for advisors who can help you:
- Find DST offers, which aren’t usually publicly available
- Evaluate the investment potential of DST offers
- Facilitate purchase of DST shares
- Help coordinate with your QI and legal/tax professionals for IRS compliance to preserve the tax deferral advantage
Wrapping Up: Like-Kind Exchange Realtor Role
In a 1031 exchange transaction, you work with various professionals to increase the chances of a successful swap. The 1031 exchange realtor is one of the critical experts you’ll need by your side, offering guidance in their areas of expertise throughout the process. A realtor helps with the sale of your relinquished property to the acquisition of a new one, .
For more information about the role of 1031 exchange realtors, Realized 1031 can provide guidance. Contact us today, and let’s discuss your concerns.
The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Sources:
https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx
