Real estate investors have long turned to 1031 exchanges to defer capital gains taxes on the sale of investment properties.
By exchanging one asset for another without taking receipt of any sale proceeds, real property investors can trade up for larger-scale assets or reposition their investment capital into different markets, all while deferring federal taxes on any realized profits.
The exchange process must follow a strict set of rules laid out in Section 1031 of the Internal Revenue Code. Mistakes or missteps that lead to a disqualified exchange could prove costly as investors would have to meet those deferred capital gains obligations.
A 1031 exchange company can help both novice and seasoned investors successfully complete 1031 exchanges. Read on to learn more about the services 1031 exchange companies offer to real property investors.
Hallmarks of Large 1031 Exchange Companies
Exchange companies vary greatly by size and scope. Some are regional, while others have a national footprint.
The largest 1031 exchange companies offer a full suite of exchange services and act more or less like a one-stop exchange shop for real estate investors. These companies employ or partner with taxation, law, title, and similar professional service people and also act as qualified intermediaries for the exchange. They often have multiple offices or enlist exchange professionals and coordinators in multiple states who can provide expert insight into local and regional real estate markets.
The titans of the industry position themselves as exchange experts who can help investors manage the process from start to finish while avoiding any missteps or complications. Some have experts who look beyond the exchange process and provide taxation and business strategies designed to help investors achieve their financial goals through real estate investing. They also might have experts who specialize in more complicated exchanges, such as reverse or improvement exchanges. Lastly, these companies typically carry large fidelity bonds, errors and omissions insurance, and performance guarantees.
Hallmarks of Midsize and Smaller 1031 Exchange Companies
While larger 1031 exchange companies positioned themselves as all-inclusive exchange centers, other companies have adopted a more specialized focus.
Some 1031 exchange companies provide an online platform with multiple channels, from online libraries where investors can gain important information about 1031 exchanges, taxation, investing and related topics to custom wealth and taxation solutions designed to help property owners maximize their real property investment capital. Advisers at these organizations can create and tailor different investment scenarios for real estate investors so they can choose an investment plan that meets their personal requirements.
Oftentimes, these companies also have online marketplaces where investors can find and compare 1031 exchange-eligible properties that might potentially suit their investment needs. As with the larger exchange companies, mid-tier and smaller exchange companies work with trusted accountants, attorneys, financial experts, and qualified intermediaries to ensure exchanges meet all the rules and stipulations set forth by the Internal Revenue Service.
The Bottom Line
The 1031 exchange process can be extremely complicated. It’s imperative that exchangors work with qualified professionals throughout the exchange process. A 1031 exchange company helps real property investors by facilitating the services required to successfully complete the exchange by originating, executing, and settling the transaction from start to finish. Oftentimes, they also will create customized exchange plans for individual investors.
