Understanding the 1031 Tax Deferred Exchange and the Qualified Intermediary
Posted on November 30, 2009
Filed Under Taxes | Leave a Comment
Most investors agree that utilizing a 1031 tax deferred exchange is definitely one of the best ways to go when interested in obtaining and selling property without the worry of paying large capital gains taxes. However, there are certain costs and transaction fees involved with a 1031 real estate exchange, which will usually depend upon the amount of risk that the Qualified Intermediary is taking, which is considered fair compensation. This is separate from the normal services they provide.
The Qualified Intermediary gets approximately two thirds of their revenue from the 1031 tax deferred exchange interest. This is the money that is obtained from the interest on the deposits that are held by the QI’s, as they can hold the interest on the funds deposited with them on your deferred 1031 exchange money. They also have the option to share a full portion or only some of the income that is generated from that interest.
The use of a fee structure is considered a very fair and concise way in which to pay the Qualified Intermediary handling your 1031 tax deferred exchange, yet all of the details need to be evaluated and understood completely by everyone. Keep in mind that the exchange size has a direct affect on how much risk the QI is exposed to, since they are equally exposed to the interest income gains from the deposits being held by them.
Some QI’s have the ability to make their fee schedule look less expensive than the competition, so consider all of the facts involved in a 1031 like kind exchange and compare each proposal to make an informed decision.
The fee structure used for paying the Qualified Intermediary for your 1031 tax deferred exchange needs to be negotiated and understood completely by all involved parties. Keep in mind that the size of the 1031 like kind exchange will have a direct impact on the amount of risk that they are exposed to, with regard to the interest income gained from the deposits they retain.
A 1031 tax deferred exchange is typically utilized by an individual who wants to sell an investment property, without having to pay any taxes. Sound too good to be true? Find out more about the 1031 exchange at Info 2 Go.
categories: 1031 exchange,personal finance,taxes
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