An independent third party should be appointed as a Qualified Intermediary (QI). The QI is expected to hold the proceeds of the sale of the relinquished property until the gains are reinvested. A written “exchange agreement” must be enacted between the investor and the QI which assists in protecting the investor from having “constructive receipt” of the exchange funds during the exchange period. QI’s ensure that rules are correctly followed and that the equity is protected. IRC rules dictate the investor to have a QI to perform a 1031 exchange.
A 1031 exchange can be a useful tool for wealth creation. However, investors must operate with their professional tax advisor to meet the requirements of IRC Section 1031, as negligence to comply with IRC Section 1031 or an unfavorable tax ruling may revoke deferral of capital gains and follow immediate tax liabilities, including tax penalties.
A Delaware Statutory Trust (DST) is an independent legal entity designed as a trust under the laws of Delaware in which each partner has a “beneficial interest” in the DST for Federal income tax purposes, and each partner is treated as owning an undivided fractional interest in the property. In 2004, the IRS issued Revenue Ruling 2004-86 which permits the use of a DST to obtain real estate in which the beneficial interests in the trust will be viewed as direct interests in replacement property for consideration of IRC 1031.
Due to DST openings being “packaged” by a 1031 sponsor with administration and funding intact, DSTs provide efficiencies in the acquisition, financing, identification, closing, and operating stages of real estate ownership.
DST properties provide a chance for diversification and low equity requirements that may allow smaller individual investors to buy in sizeable institutional investment properties. But DSTs include extra costs over the costs of direct ownership. Income created from a DST property can often be protected from tax through using depreciation and interest deductions.
1031 Exchange programs enable your money to churn the maximum profit for you. However, the exchange process is extremely complex in nature and it would be wise to seek guidance from expert professionals. We have extensive experience in handling highly profitable exchanges for our varied client base.
For consultation and assistance regarding 1031 exchange call 888-993-2835 or email us at email@example.com.