Undergoing a 1031 exchange is a tax-deferred transaction. While often utilized by accredited investors, it is open to a range of taxpayers who meet the criteria. The process includes strict timelines and compliance obligations, and even small errors can jeopardize the tax-deferral benefits. For this reason, many investors choose to engage qualified professionals who can offer guidance and help support compliance throughout the exchange.
If you’ve been asking, “Who can advise me on a 1031 exchange?” Realized 1031 has shared a guide to help you out. Let’s take a closer look at these types of experts.
Because 1031 exchanges are subject to IRS rules that can disqualify the transaction if not followed precisely, working with professionals who understand these requirements is advisable. There are a few core requirements that all investors should know.
Noncompliance with any of these rules can invalidate the exchange. Given the short timelines and legal precision required, many investors find professional support essential to completing a successful transaction.
Under IRS regulations, a qualified intermediary (QI) is the only party you are legally required to engage in a 1031 exchange. Also known as an accommodator, the QI facilitates the exchange by holding the proceeds from the sale of the relinquished property and preparing the necessary documentation. Critically, the QI must be an independent third party with no prior relationship to the taxpayer, as defined under Treasury regulations.
You must engage a qualified intermediary before closing on the sale of your relinquished property. If you take possession of the sale proceeds or fail to designate a QI in time, the transaction will not qualify for tax deferral.
Here are the key functions a QI performs:
While working with a realtor is optional in 1031 exchanges, many investors find it helpful—particularly when navigating market dynamics and the strict identification timelines involved. During the sale of your relinquished property, your realtor can help with tasks such as:
After the sale, a 1031 exchange broker can assist with with identifying prospective replacement properties. An agent experienced with the like-kind exchange understands the strict deadlines involved, and can help support timely execution. Plus, your realtor can help make the official identification easier, providing the information needed for the documentation.
A real estate attorney can provide essential legal oversight for 1031 exchanges, particularly when the transaction involves more advanced ownership structures such as LLCs, partnerships, or tenancy-in-common (TIC) arrangements. The attorney assists by reviewing purchase and sale agreements, identifying potential legal risks, and ensuring the deal's structure complies with IRS regulations and state real estate laws. If any disputes arise during the process, or if issues with zoning, title, or contracts come up, your attorney serves as the primary legal resource to help resolve those matters.
When selecting legal counsel, it is advisable to choose an attorney with direct experience in 1031 exchange transactions, not just general real estate law. Additionally, the attorney should be licensed in the state where the property is located, as legal requirements can vary significantly between jurisdictions.
Engaging with a certified public accountant (CPA) or tax advisor is widely considered best practice during a 1031 exchange. Remember that the transaction only defers, rather than eliminates, your capital gains tax payments. As such, a CPA plays a key role in helping you understand and track your current and future tax liabilities. This expert can help with the following and more.
Beyond crunching numbers, your CPA can provide insight into the broader effect of the 1031 exchange on your investment goals and financial picture. Their advice can help you understand how this transaction may impact your retirement, estate planning, and other long-term financial plans.
Along with your CPA, your financial advisor can help you assess how a 1031 exchange fits within your broader investment strategy. The CPA focuses on your taxes while the advisor looks at the bigger picture, such as how the exchange affects your overall portfolio, cash flow needs, and risk tolerance.
Additionally, your financial advisor may also provide guidance on asset allocation and diversification. This can be particularly useful in helping manage the risk of over-concentration in real estate assets. With their guidance, you can make informed decisions that align with your short- and long-term financial goals.
For investors pursuing advanced or non-standard exchange structures, a 1031 exchange consultant may offer specialized support. These professionals can provide guidance on procedural and compliance considerations for more sophisticated exchange types, such as:
When selecting a professional to support your 1031 exchange, consider the following best practices to help ensure you're working with individuals who are both competent and appropriate for your needs:
1031 exchanges involve detailed IRS rules and strict timelines, which can make professional support particularly valuable. While a qualified intermediary (QI) is legally required to maintain tax-deferral eligibility, many investors also choose to work with brokers, CPAs, financial advisors, and real estate attorneys. These professionals can help clarify tax obligations, align the exchange with broader financial goals, and support procedural accuracy throughout the transaction.
By assembling a team of experienced advisors, investors may be better positioned to navigate the technical requirements of a 1031 exchange and avoid common pitfalls.
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.
Article written by: Story Amplify. Story Amplify is a marketing agency that offers services such as copywriting across industries, including financial services, real estate investment services, and miscellaneous small businesses.
Sources:
https://www.cpec1031.com/blog/4-documents-to-provide-your-cpa-for-reporting-a-1031-exchange