1031 Exchange Advisors: Complete Guide

an advisor is giving legal or tax advice to his client

IRC Section 1031 is undoubtedly one of the tax code’s most favorable provisions, but there are strict IRS guidelines and deadlines for finishing a tax-deferred 1031 Exchange. The 1031 procedure can be difficult to understand, and a mistake might lead to an unsuccessful exchange or the acquisition of unsuitable replacement property.

Having the correct staff in place and engaging with a registered 1031 Exchange Advisor can guarantee your exchange is effective and achieves your objectives, according to seasoned real estate investors.

How do 1031 Exchange Advisors Work?

A 1031 Exchange Advisor can be compared to a team leader, and every team requires a strong leader. A top-notch 1031 Exchange Advisor is highly skilled, FINRA-licensed, and knowledgeable about the exchange proceeds, tax law, 1031 Exchange techniques, and replacement property possibilities that are most suitable for achieving your goals.

Your 1031 advisor will act as the team’s leader by working with you to comprehend your goals, create an exchange plan, assist you in choosing and help you acquire replacement property, and lead you through key stages of the 1031 Exchange process to guarantee IRS regulations are followed at all times. The advantages of dealing with a certified exchange advisor are listed below.

The 1031 advisor will work as a qualified intermediary while assisting you in terms of legal or tax advice and will collaborate with you to decide whether a 1031 Exchange is appropriate for you.

  • Offers advice and suggests the 1031 tactics most likely to help you achieve your goals.
  • Aids in finding and acquiring the appropriate replacement property.
  • Ensures that all IRS laws and time criteria are met as it leads you through the whole exchange procedure.
  • Keeps in constant contact with your other advisers to make sure that all exchange-related issues are covered.

Finding a 1031 Exchange Partner: What to Look for

A professional 1031 Exchange advisor should aid you in negotiating the exchange requirements, debt matching concerns, and co-ownership difficulties in addition to assisting you in finding, selecting, and purchasing qualifying replacement property. They should also act as a strategic partner.

There are many 1031 Exchange companies to choose from, but like any sector, the amount of competence, years of expertise, client focus, thorough research, and services supplied can differ significantly.

So, while choosing a 1031 Exchange company to work with, only think about reputable companies that can prove the following standards:

Someone who is FINRA-Licensed

Before dealing with a 1031 Exchange Advisor, confirm that they are FINRA-licensed. FINRA is a self-policing agency governed by the Securities and Exchange Commission. By making sure the broker-dealer sector functions honestly and fairly, FINRA can safeguard American investors. FINRA monitors more than 600,000 licensees nationwide and examines billions of market events every day.

an advisor is acting as a qualified intermediary and helping her client identify replacement property

Reputable and Well-established

The 1031 Exchange market is a rather limited niche. If 1031 providers suggest replacement properties that are unsuitable for owners or lack a solid grasp of the subtleties of the tax legislation, word spreads rapidly. Additionally, industry newcomers lack the knowledge necessary to successfully navigate several market cycles.

Someone who can understand you as a person

The process of choosing the best replacement property choices and developing the best transition strategy must be customized for each client. Several 1031 Exchange Advisors could adopt an “opt-your-own-adventure” strategy, offering the customer a plethora of possibilities with no context or analysis. Instead, a top-notch 1031 Exchange advisor will take the time to learn about your economic and lifestyle goals and build a deliberate plan to set you up for success.

Someone who can educate you about 1031 exchanges, the procedure, regulations, and deadlines

An excellent 1031 Exchange Advisor will always put their clients’ education first and take the time to make sure they are aware of all of their alternatives as well as tax legislation. Your exchange counselor should also give a fair viewpoint, outlining both the advantages and disadvantages of every proposed path of action.

Someone who gives strategic advice

Although there isn’t much time left after the purchase of an investment property, the exchange procedure doesn’t have to be hurried. Planning well can lengthen the schedule and enable wise strategic choices. In addition, certain techniques, like refinancing to remove liquidity before a sale, might “season” for a year prior to the sale actually happening.

In order to implement a strategy that is in your best interest, the 1031 Exchange Advisor ought to have patience and be prepared to work with you over a period of years, if necessary. Additionally, they ought to be accessible after an exchange to answer queries about the exchange’s tax, management, and estate planning implications.

Someone who creates a smart and workable 1031 transition strategy to support the achievement of your goals

The goals of an owner shift as circumstances in life and in markets do. A transition strategy should be a dynamic document that may be changed as necessary. The secret to a successful trade plan is intentionality. A competent (and wise) 1031 Exchange advisor will always create a strategy that is both feasible and strategic.

Someone who gives you access to all appropriate and practical 1031 Exchange options

Investment property owners have a variety of alternatives for replacement properties and exchange techniques, including net rental assets, Delaware Statutory Trusts (DSTs), fee simple real estate, tenant-in-common (TIC) properties, and even Real Estate Investment Trusts (REITs).

A top-notch 1031 Exchange Advisor will provide all viable possibilities, remain impartial toward the recommended course of action, and only make recommendations that are in your best interests and in line with your financial and personal goals.

Someone who will work with your other experts, including your CPA, competent intermediary, estate planning lawyer, real estate broker, and financial advisor

To make sure that everything is in place for a successful exchange, your 1031 Exchange advisor has to be eager to work with the rest of your team of experts. These services are offered “in-house” by some 1031 Exchange companies, which also actively promote accountancy, estate planning, and wealth management services to their clients.

Although the integrated method could seem to simplify the procedure, we believe it causes a conflict of interests in the advice given to an owner and ought to be avoided. There should be a company that specializes in real estate transfer and replacement property selections because it is so hard. In the same way that you wouldn’t want your family doctor to operate on your knee, only a financial expert with experience in trading exchanged assets should come up with your exchange plan.

Someone with a broad network of other qualified specialists to suggest

Qualified and experienced 1031 Exchange organizations have to have a wide network of vetted, reputable individuals or businesses that they may refer a customer to, if necessary.

defer capital gains taxes documented on a table

1031 Exchange Tax Implications

An investor can acquire and sell properties using a 1031 exchange, a sort of tax deferral scheme, without having to pay taxes on the profit from the selling of the first property.

There are a number of regulations that apply to this sort of transaction, but if you properly abide by them, you can significantly reduce the amount of capital gains tax you owe each year.

A 1031 Exchange essentially allows you to swap one property for the other without getting taxed on the transaction. This may be a fantastic way to transfer money without incurring hefty IRS fines.

However, there are a few items to consider while organizing a 1031 exchange:

  • Within 45 days, you must utilize the proceeds from the sale of your initial property to purchase a new investment.
  • After selling your old property, you have 180 days to find a replacement. You may only perform one 1031 exchange each year.
  • The substitute property must be of the same type (stock for stock, real estate for real estate, etc.)
  • A 1031 Exchange is only permitted once every 2 years.

There are certain other regulations that apply to this sort of transaction as well; if anything is unclear or causes you to worry, you may need to speak with a tax expert.

What You Should Know About 1031 Exchange Taxes

You should be aware that the replacement property has to be of “like-kind” or have comparable properties in order to qualify for a 1031 Exchange.

For instance, it is not regarded to be like-kind if you sell your home and use the funds to purchase an apartment complex. This is against IRS regulations. Selling the estate in one state and buying another within 2 years is a typical strategy used by real estate speculators to get around this problem.

By doing it this way, you can avoid having to pay capital gains tax on your initial sale. However, it’s critical that you strictly adhere to the laws or this method won’t be as successful as anticipated.

It’s also important to keep in mind that you must execute your 1031 exchange within 180 days after selling the original property. You may create a few exceptions to this regulation if you want to, but it’s crucial to remember all of the guidelines when organizing a 1031 Exchange.

Additionally, keep in mind that the replacement property has to be of a comparable type. If not, the transaction will not succeed, and you will be required to pay taxes on the profits you made.

However, this transaction may be totally tax-free for investors each year if your 1031 exchange is finished within 180 days and all other regulations are met. It’s crucial that you comprehend how to carry out a 1031 exchange properly to avoid being charged with significant capital gains taxes when all is said and done.

a man is signing a document to complete his exchange process

Will You Need a Lawyer for a 1031 Exchange?

Yes, a lawyer is necessary to properly complete a 1031 exchange. If you make the wrong decision, the transaction might be quite complicated with serious legal and tax repercussions. Additionally, IRS laws mandate that a “certified intermediary” handle the money obtained from the purchase of the first property rather than the investor, who is not allowed to touch it.

The wisest course of action is to hire a lawyer as the competent middleman—just not your lawyer. According to IRS laws, anybody who worked for the investor as their worker, lawyer, bookkeeper, or real estate agent within the 2 years preceding the sale of the first property is ineligible to represent that investor as an intermediary. That includes everyone who works for the same company as those people.

To function as competent intermediates, all of the leading 1031 Exchange businesses either employ or hire attorneys who have expertise in 1031 Exchanges.


Contact us to arrange a free consultation to talk about your investment property, goals, potential tax liabilities, and tax-deferral alternatives if you’re trying to market your investment property and want to know if a tax-deferred 1031 Exchange is the correct choice for you.

If you need help with exchange services, give us a call at 00-240-9094 and let our team of experienced experts help you!

Compare listings