The 1031 exchange process can be complicated, especially for novice or first-time real estate investors. Completing a successful exchange requires strict adherence to deadlines and other IRS exchange provisions.
While it’s certainly possible to cross the finish line on your own, investors might consider engaging legal counsel to help avoid making any mistakes that could disqualify their exchange and create tax liability from the sale of an investment property.
The IRS rules regarding 1031 exchanges are pretty much set in stone -- break any of them, and you’ll likely find yourself with a disqualified exchange and hefty tax liability.
Missteps that an experienced real estate attorney could help you avoid include:
Attorneys with experience in real property law and 1031 exchanges can help investors bridge any gaps in knowledge about the intricacies of the exchange process and help ensure they follow procedure to complete a successful exchange.
Skills a lawyer could potentially bring to the table include:
In some jurisdictions, an attorney can be designated as your Qualified Intermediary, but it can’t be your regular legal counsel -- IRS rules state that legal counsel can only act as a Qualified Intermediary if he or she has not performed services for the client in the prior two years unless the work is related to a 1031 exchange.
Experienced investors who are familiar with the 1031 exchange process might be able to forgo hiring legal counsel and navigate the intricacies of the exchange on their own. Novice and first-time exchangers who might have some uncertainty about how to successfully complete a 1031 exchange would be well-served by adding an experienced real estate lawyer to their exchange team. Ultimately, though, the decision to hire a lawyer to help complete a 1031 exchange rests with the exchanger.