How to Find a California Qualified Intermediary for 1031 Exchanges How to Find a California Qualified Intermediary for 1031 Exchanges
Are you a real estate investor in California looking to use the tax-deferred advantages of IRC Section 1031 in the sale and purchase of investment properties? If so, one of the first things you should think about doing is finding a Qualified Intermediary (or QI for short) that can help you navigate the 1031 exchange process.
Not only will an experienced QI like the team at Leader1031 help you feel more confident with your tax-deferred exchange, but they will provide important guidance to the rest of your team including your attorney, tax advisor, and real estate agent. So it goes without saying that California investors looking to complete a 1031 exchange need to find an experienced QI that they can trust. Below, we'll provide some helpful tips on how to find a Qualified Intermediary in California.
What Does a Qualified Intermediary Do in a California 1031 Exchange?
Before we get into how to find an experienced QI for a 1031 exchange in California, let's break down exactly what a QI will do as part of a like-kind exchange. As mentioned above a Section 1031 like-kind exchange (also known as a like-kind exchange or starker exchange) involves the sale of a relinquished property in exchange for a like-kind replacement property (or properties) to defer capital gains tax on the sale. In general, any real property can be exchanged provided it is held for “investment” or for the “productive use in a trade or business”.
As part of this process, a QI must be involved prior to the closing of the relinquished property to create an exchange agreement with the taxpayer and obtain other documentation. The taxpayer must then identify any replacement property or properties in writing in a timely manner. Finally, the QI must hold the exchange funds during the exchange period and apply them only toward the acquisition of replacement property.
Qualified Intermediary Requirements in California
The IRS requirements for QIs in California are similar to those across the rest if the country. First of all, you can't act as your own QI. You also can't use a relative as a QI in a 1031 exchange. You also can't use anyone who has acted as your agent in the previous two years as a QI. Your CPA or attorney can't act as your QI either as they are considered disqualified persons if they have provided any non-exchange related services within the two-year period prior to your exchange.
While you'll need to follow the legal requirements when choosing a QI in California, you should also be thinking about your own requirements for a Qualified Intermediary as well. As we'll outline in further detail below, looking for an FEA-approved QI (like Leader1031) is a great place to start. Other questions to ask when determining what your requirements are for a QI to spearhead your 1031 exchange is how big is the exchange company that the QI works for, how many exchange deals has the QI done in the last few years, and how many different types of exchanges does the QI have experience working on.
Start with the Federation of Exchange Accommodators (FEA)
The Federation of Exchange Accommodators (or FEA for short) is a national trade organization representing QIs that promotes ethical standards of conduct for professionals in the industry. The FEA also certifies QIs using a rigorous exam process.
When looking for a California QI to help complete the exchange, ensuring you contract a certified exchange specialist that is FEA-approved (like Leader1031) is a great way to know you'll be working with an experienced professional with the backing of the national trade organization for the 1031 exchange industry.
The other benefit of working an FEA-approved QI is that the organization is at the forefront of innovation and education throughout the industry, so you know your QI will be up to date on the latest ideas in the 1031 exchange space.
Get Referrals from Trusted Sources
As mentioned above, if you're working on a real estate transaction in California you'll almost certainly be working with a team of professionals including an attorney, tax advisor, and real estate agent. They will be a great place to start if you're looking for a QI as well. Ask if they've worked with a QI on previous transactions that they would feel comfortable recommending. Your attorney, tax advisor, and realtor should be in a good position to make a recommendation as well because they will be familiar with the specifics of your property transaction, and can ideally recommend a QI who has worked on a similar type of exchange in the past.
If you work with a CPA or Title Company on business transactions, these types of professionals can also be great resources when looking for QI recommendations.
Do Your Due Diligence
Whether you're selecting a Qualified Intermediary on your own or vetting a QI recommended by someone, it's important to do your own research to determine what other clients had to say about working with a particular QI.
A simple online search for client reviews or ratings is a great place to start, and you can also ask a QI directly if they'd be willing to provide you with a client referral or testimonial.
As mentioned above, beyond looking for general client satisfaction when you're looking at QI reviews online, keep an eye out for mention of QIs who have previously worked on the type of 1031 exchange you're looking to complete.
How to Get Started With a 1031 Exchange in California
By now you probably have a sense of why vetting potential Qualified Intermediaries serving California to lead your 1031 exchange is so important -- a QI will not only be facilitating the exchange but can provide invaluable guidance and leadership to your entire transaction team to ensure your exchange is successful. It can't be overstated -- choosing the right QI will help ensure the security of your funds and equip your team with the knowledge they need to complete their portion of the exchange successfully.
Leader Bank's 1031 exchange subsidiary, Leader1031, serves as a QI for real estate investors seeking to sell and purchase property using the tax-deferred advantages of a 1031 exchange. These services provide greater integration and efficiencies for our commercial real estate clients, and Leader1031 is committed to providing the highest quality of service.
As soon as the property you are selling has gone into contract, you can set up a 1031 Exchange account with Leader1031. This 1031 exchange account and certain documentation provided by your QI must be in place prior to the close of your relinquished property sale.
Leader1031 is ready to help ensure your transactions are in full compliance with IRS Code Section 1031. Contact Leader1031 today!.
It is imperative that you also consult with your own tax and legal counsel. Leader1031 is prohibited from providing tax and legal counsel as a Qualified Intermediary under the IRS Code Section 1031.
The content of this publication is provided as general information only and should not be taken as legal, investment or other professional advice. This content of this publication shall not be construed as a recommendation to participate in any particular trading, financial or investment strategy, and neither Leader Bank, NA nor Leader1031.com, LLC can provide legal or tax advice concerning the specific tax consequences of a given transaction. Any action that you take as a result of information or opinions provided in this publication is ultimately your responsibility. Consult your attorney, accountant, or tax professional before making any investment or financial decisions.
To ensure compliance with requirements under Treasury Department Circular 230, we inform you that the contents of this publication are not intended or written to be used, and may not be used, for the purpose of (i) avoiding U.S. federal tax penalties or (ii) promoting, marketing, or recommending to another party any matter addressed herein. Each taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax adviser.
