1031 Tax Deferred Exchanges: “What Residential Real Estate Agents Need to Know in a 1031 Tax Deferred Exchange”

1031 tax deferred exchanges provide real estate agents a tremendous opportunity to increase commissions! Conversely, by not understanding a few key exchange concepts, real estate agents often can unknowingly incur increased liability. We have provided answers below to questions frequently asked by residential real estate agents.

Q: When Should the Intermediary Be Contacted?

A: As soon as the contract is signed. 1031 Exchange Center, a leading national “Qualified Intermediary,” does not charge a cancellation fee if the transaction does not close.

Q: What Language Should be Added to the Purchase and Sale Agreement?

A: The verbiage below is satisfactory in establishing the Exchanger’s intent to perform a tax deferred exchange and releases the other parties from costs or liabilities as a result of the exchange.

“Buyer is aware that Seller intends to perform an IRC Section 1031 tax deferred exchange. Seller requests Buyer’s cooperation in such an exchange and agrees to hold Buyer harmless from any and all claims, costs, liabilities, or delays in time resulting from such an exchange. Buyer agrees to an assignment of this contract to 1031 Exchange Place by the Seller.”

Q: Who Should I Contact to Set Up an Exchange?

A: You can call 1031 Exchange Place’s National Headquarters toll-free 800-282-1031.

Q: What Should Be Done so I Do Not Incur a Potential Additional Liability?

A: Every time you list any property that may have been “held for investment” (i.e. rental house, second or vacation home, duplex, land, etc.), recommend that your client talk to their legal and/or tax advisors about the benefits of a 1031 exchange.

You can also suggest that your client call an experienced Qualified Intermediary. Exchanges have been a part of the tax code since 1921. As a licensed professional, a real estate agent can’t afford to say, “I don’t know about exchanges because I specialize in residential.”

Q: Can a 1031 Tax Deferred Exchange Be Set Up at the Last Minute?

A: Yes, as long as the transaction has not closed. 1031 Exchange Place can successfully convert a sale into an exchange. Documents can be prepared and faxed to the title company within an hour.