Safe
Harbors and Intermediaries
WHO
IS A QUALIFIED INTERMEDIARY, AND WHAT ROLE DOES S/HE PLAY IN
THE 1031 LIKE-KIND EXCHANGE PROCESS?
According
to the Federation of Exchange Accomodators, a Qualified Intermediary
(QI) is: “ The professional provider of the mandatory
mechanics of an exchange. The use of a QI, as an independent
party to facilitate a tax-deferred exchange, is a safe harbor
established by the Treasury Regulations.”
“When
the taxpayer engages the services of a QI, pursuant to an exchange
agreement, the IRS does not consider the taxpayer to be in receipt
of the funds. The sale proceeds go directly to the QI, who holds
them until they are needed to acquire the replacement property.
The QI then delivers the funds directly to the closing agent
who deeds the property directly to the taxpayer. Without a QI,
and pursuant to an exchange agreement, the IRS may not define
a transaction as an exchange, thereby making it ineligible for
tax deferment status.”
A
qualified Intermediary is able to convert a sale of one property
and the acquisition of another into an exchange that meets IRC
Section 1031 guidelines. The IRS Code specifies that a QI (a
person or entity) may NOT be the taxpayer, a related person,
an agent of the taxpayer, or a person related to the agent or
taxpayer.
If you are interested in real estate for investment (or for
stewardship), we highly recommend that you interview and select
a qualified intermediary who will provide you with expertise
in the coordination of your transactions from the time before
and after Asheville 1031 Realty, Inc. locates replacement property
for you. The QI can confirm that the property we select qualifies
for a tax-deferred exchange. Together with your Broker at Asheville
1031 Realty, s/he can look at the equities between the relinquished
property and the replacement property.
In
addition s/he can calculate the adjusted basis of the relinquished
property, the amount of exchange expenses, capital gain from
the sale of the relinquished property, the estimated amount
of tax due from the sale of the relinquished property, and can
determine the estimated amount of cash to be received from the
sale of the relinquished property. It is important to calculate
the tax savings involved in a tax-deferred exchange. This involves
determining the amount of suspended passive losses available
to offset capital gain from the sale of the relinquished property.
Then
your QI will calculate the amount to be invested in the replacement
property to defer the maximum amount of capital gain, prepare
the Exchange Agreement, prepare the necessary documents to convey
the relinquished property from the Exchangor to the Buyer, and
provide a Safe Harbor for funds. (In a 1031 Like-Kind Exchange,
investors must be careful NOT to violate the "access to
funds” rules. Next, expect the QI quickly to send off
a letter in terms of timing and identification of the replacement
property. Necessary documents to convey the replacement property
from the seller to the buyer are next on the agenda, and of
course Asheville 1031 Realty, Inc. is happy to be of assistance.
Finally the QI will calculate the tax basis for the newly acquired
replacement property for depreciation purposes, and can assist
in preparing Form 8824 which is specific to 1031 Like-Kind Exchanges.
Ask
us about the latest news on Asheville, North Carolina real estate
trends to see why we believe Asheville real estate is a wise
1031 Exchange investment for your future. And PLEASE
CHECK OUT OUR VERY SPECIAL PICKS FOR YOU IN LAND BUYS AND REAL
ESTATE INVESTMENT PROPERTIES!
