1031 exchange is a useful tool to build wealth and diversify your investment portfolio. However, to make things successful, you must follow the rules defined by the IRS.
For starters, you must identify up to three replacement properties within 45 days of selling the relinquished property and close on the chosen properties within 180 days of selling the relinquished property. But another thing you must consider is getting in touch with the right 1031 exchange facilitator.
A Qualified Intermediary (QI) is a person who holds your proceeds until you invest them in a replacement property. And, because choosing the right QI is imperative, here are the 5 questions you must ask yourself before making a choice.
Is The Qualified Intermediary Experienced With Different Types Of Exchanges?
Unlike the traditional exchange, where you sell the relinquished property first, the 1031 exchange can be done in a number of different ways. In addition to the traditional 1031 exchange, you can also do a reverse 1031 exchange where you purchase the replacement property first. Moreover, if you want to keep a certain portion of your proceeds with yourself, you can also do a partial 1031 exchange, where you don’t reinvest 100% of your proceeds.
It is important to choose a 1031 exchange facilitator who is well-versed with the different types, the timeline and the rules associated with them. Moreover, each exchange is a unique process, and your QI must be able to adapt to your needs to help you get the most benefits.
Will The Proceeds Be Held In FDIC-Insured Bank Accounts?
As stated above, when you sell a relinquished property, teh proceeds are transferred to the QI. And, because it is actually your money, it is wise to know that your funds are being held in top-tier banks offering FDIC-insured accounts.
This will give you peace of mind that your funds are safe and present absolutely no hassles during replacement property closing. That being said, choose a 1031 exchange facilitator who promises to hold your funds in an insured account, allowing high liquidity and even higher returns.
Is Your QI Free To Work With Many Banks?
It’s often true that a QI might only work with a single bank. And if you choose a QI restricted to just one bank, you might have to stick to a bank you don’t actually like. And, there’s more to this. If you go for FDIC-insured banks, only $250,000 of the proceeds will be insured. But what if you have more than that?
In this case, it is preferred to choose a 1031 exchange facilitator who is open to working with multiple banks. This will give you the liberty of choosing your preferred bank. Moreover, the QI might divide the funds and put them in different FDIC-insured bank accounts to ensure that every cent of your proceeds is covered.
Is The QI Available 24/7?
It can be really strange when QIs don’t provide clear information as to where your proceeds are being stored. And, to ensure your funds are safe and secure, it’s vital to have access to the information 24/7. This applied not only to funds but also to the entire 1031 exchange process.
Is The Process Followed By The QI Subjected To Annual Compliance Examination?
To ensure the QI keeps in mind the federal and state laws, the QI must submit an annual third-party audit of its technologies and business practices.
To choose the right QI, you must make sure that they are experienced, use FDIC-insured bank accounts and are open to working with multiple banks. And, in case you need investment advice, you can connect with registered investment advisors to select the right replacement property.