What is the role of an intermediary in 1031 exchange?
If you want to swap your business property for another one, then you already know that you have to work with an intermediary. If this is the first time when you want to use the 1031 exchange, then you should know that it would not be very easy to decide upon the right intermediary. And you should not try to handle all the things by yourself, because this is not a do-it-yourself project. You have to check the IRS rules to make sure that you will benefit from tax deferral. The main condition of the investment property exchange to be successful is to work with an intermediary who was not your agent in the last two years. If you want to find more about the role of the middle person, then you should check the article below.
Who can be your intermediary?
If you want to use the 1031 section, then you should know that you cannot simply sell yours and buy another one, and expect the IRS to not ask you tax on the capital you gain. The IRS rules state that neither your siblings, nor your children or siblings can be your intermediary. Also, your attorney or agent cannot be your middle person, unless they had not represented you in the last two years.
What services does the middle person provide?
You should know that intermediary would help you with different actions. The first thing they do is to coordinate the exchanger and the seller on the structure of the swap. Also, they are the one who will prepare the required documentation concerning your property and the one that will replace it. They will provide the appropriate documents and instructions to the title company or escrow, concerning the investment properties exchange. The intermediary will create an arm’s length transaction between the exchanger and the seller and they will be the one who will transfer the property you want to sell and who will convey it to the new buyer.
The middle person has the role to not allow the seller to take any constructive receipt of the gain of the sale. They will hold the money from the sale of your property during the term of 45 days. The middleman will receive written information about the properties you may want to use as replacement, and they will hold all the paperwork. When you decide upon the replacement property, they will transfer the funds for the purchase. The intermediary is the one who will acquire the replacement property for you and who will convey you the title by deed.
The intermediary provides guidance
Perhaps the most overwhelming part would be that you have no idea what the process implies. Therefore, the intermediary will provide you the needed guidance. They will be able to answer to all your questions and they ease the process for you. The intermediary will make sure that you respect all the rules required by the 1031 exchange, and that you will not have to pay tax at the end of the swap.