For those of you contemplating a 1031-exchange to defer capital-gains taxes, the best way to avoid problems is to consult with experienced advisers, tax professionals and a good Exchange Accommodator, also known as a Qualified Intermediary, or “Q I”.
Nevertheless, it’s always good to know the biggest pitfalls on your path, even when you have a great guide.
The first mistake is failing to instruct your escrow agent to pay the proceeds of your sale to a QI. Receiving the money yourself will kill your exchange before it starts.
Second, failing to identify a replacement property within 45 days will automatically blow your exchange.
Third, and related to the second pitfall, is not properly following one of the IRS identification methods, known as the Three-Property Rule, the 200% Rule and the 95% rule.
You definitely should consult with your attorney, CPA or QI to help you navigate these rules.
Fourth, not fully replacing the full value of your relinquished property—including both equity and debt—will result in at least a partial failure of an otherwise fully-deferred exchange.
Finally, not working with a qualified investment professional can create worse results than a big tax bill.
For more information, please give 1031 Capital Solutions a call today. Thank you.
