1031 Exchange
My wife and I are selling one of our apartments to the current tenant and we’re looking to do a 1031 exchange to avoid paying capital gains taxes. Is anyone familiar with companies that provide this service specifically in Brooklyn. Additionally, is there a way to extend the 45 day identification period to find prospective…
My wife and I are selling one of our apartments to the current tenant and we’re looking to do a 1031 exchange to avoid paying capital gains taxes. Is anyone familiar with companies that provide this service specifically in Brooklyn. Additionally, is there a way to extend the 45 day identification period to find prospective properties?
You need to find a Qualified Intermediary (“QI”) and it need not be local since nearly all QIs will assist nationwide. Also your question is timely since there has been a recent spate of QI failures so there is no doubt that real property investors should be quite concerned about how to choose a QI. I am an attorney and have also been in the Qualified Intermediary business for nearly 30 years (see amherst1031.com) and I can confirm that there are some very real indicators of the security of any QI.
First: Look for completely segregated accounts. As an attorney, my law firm is required to segregate all trust funds held for a client. While QI funds are not trust funds in the true sense of the word, there is no reason they should be treated any less strictly. Funds are co-mingled by QI for their benefit and not the customer. More on this below
Second: Don’t be confused by Fidelity Bonds or Insurance. What a customer needs to require is some sort of joint signatory control over the segregated account. Insurance or bonds may (or may not) provide some source of recovery if funds are lost, but an exchanger needs the funds to be there when they are to complete their exchange and the ONLY way to assure that is to have some control over the funds during t he exchange period. Size and financial strength of a QI may seem like all that is needed but without this security, there is no assurance your funds will be there when you need them
Third: Insist that you receive ALL interest earned on your funds. The reason QIs co-mingle funds and the reason QIs lose funds is that they usually receive some or all of the interest earned on those funds. Hence there is an incentive for the QI to take risks with the funds to increase their (not the customer’s) return. Not only does this arrangement hide the true cost of the exchange, it is essentially stealing the return the exchanger is entitled to receive. Less than 4% of the QI nationally pay all the interest earned to the exchanger. Look for these companies Compare the actual cost (including lost interest) when comparing fees the QI will be paid. Often the “cheapest†QI may keep the most interest and become the most expensive option. TJ Starker received “interest†and there has never been any reason all exchangers should not receive this interest.
Fourth: Often smaller companies (who do provide the necessary security) can provide greater flexibility and assistance in your exchange. Larger companies can only offer “cookie cutter†services and I can assure you every exchange is unique and will present issues that should be discussed and reviewed. When you want personalized professional service, you will find it in the very experienced smaller QI companies.
Fifth: Look for experience and a long term track record. Ask other professionals about which QI they would use. Attorneys CPAs and experienced commercial real estate brokers will often have experience with a variety of QI and may provide some insight into who is best in your area. Remember that the QI need no be local as long as they meet your standards.
These concepts are not rocket science, but it is amazing how often exchangers don’t do even the most basic “homework†before picking the QI who will hold their exchange funds.
The 45 day period cannot be extended, it is concrete. I advise people to locate potential replacement property before closing on the sale if they are pressured by that deadline. As another person commented, the 1031 company can be located anywhere in the country as the process is quite simple to complete. In fact, even if there is an office near you, chances are the actual documents are processed at another location anyway. The web address I cited can be of help and I can be reached there if I can be of assistance.
1031 Like Property Exchanges don’t have to local. I’ve worked with Scott Osgood at Osgood & Harris 2336 Canyon Blvd. Ste 200 Boulder, CO 80302 phone 303-442-0165 fax 303-442-6115.
He answers questions in a very clear concise manner that is very, very helpful.
Don’t know anyone who does 1031 exchanges but can you sell an apartment in your home without having a valid condo plan in effect? Do they become co-owners of your home? Doesn’t that give them a voice in anything you do? If it isn’t a condo, who will ever buy the apartment from them? Partly curious and partly a warning.
FWIW, when we moved from CA to here we used a CA company (First Guaranty Exchange) which 1) charged 1/2-1/3 of some NY estimates; 2) required almost NO paperwork and 3) did all money transfers electronically.
Of course, the stupid bank here (Richmond County Savings) *wouldn’t accept the final payment electronically*, so FGE fedexed them a check on the day of closing (against my attorney’s advice, since technically I (the original owner) should never have access to the proceeds according to IRS; I said that that the check was never in my hands.)
Afaik, the deadlines (45 days and 180 to complete transaction) are cast in stone. The CA side of my transaction was a total breeze, I was not even there (there’s no closing in CA.) Make sure your attorney informs the other side at the getgo (this is another reason for all sides to disagree,) and signs off on a Notice of Reassignment.
It’s difficult in this RE atmosphere of fear, doubt and uncertainity and I wish you luck.