Have a client selling investment property?

A 1031 exchange has to be set up before your client's sale closes. Introduce Leah early, and she handles the exchange steps and the deadlines alongside you. You keep doing what you do for your client.

When to introduce Leah

The common thread is timing: once the sale closes and the client has the proceeds, an exchange is generally no longer possible (Treas. Reg. §1.1031(k)-1(f)).

• Brokers and agents. When a seller of investment property says they plan to buy again, or asks about tax on the sale. The listing appointment is a good moment; under contract is not too late.
• CPAs and tax advisers. When a client mentions selling a rental, a commercial property or land. For a sale late in the year, the return due date can shorten the 180 days unless the return is extended, so it helps to plan that together.
• Real estate attorneys. Before the sale contract is final, so that the assignment and the closing instructions can be planned with the contract, not added in the last week.

Other signs it is worth a conversation:

• The client wants to buy the replacement first. That is a reverse exchange, and it must be arranged before the purchase.
• The client wants to build or improve on the replacement property. See improvement exchanges.
• The property is held in an LLC or partnership, and the owners want different things.
• Closing is weeks away and nobody has mentioned an exchange yet.

What helps Leah help your client

A few facts are enough to start:

• The state the property is in
• Where the sale stands, and the expected closing date if there is one
• In general terms, how the property is owned (an individual, an LLC, a partnership)
• Whether the client has a replacement property in mind

Please don't send your client's name, address or financial details through the form. The simplest introduction is an email with your client copied, so they are part of the conversation from the first message.

How coordination works

Everyone keeps their own role. Leah is not the client's CPA, attorney or broker, and does not give tax or legal advice.

Who holds the funds. The qualified intermediary is a company. Before the client signs, Leah confirms in writing which qualified intermediary will hold the funds, and gives the client its account, bond and insurance documents.

Why it is generally not you. Someone who has acted as the client's employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the two years before the sale is a "disqualified person" and cannot be the client's intermediary. Services solely for section 1031 exchanges, and routine financial, title insurance, escrow or trust services from a financial institution, title company or escrow company, do not count (Treas. Reg. §1.1031(k)-1(k)).

Pre-closing checklist

A working list for a client's sale. Each item is a question to settle before closing, with who usually settles it.

Dates for a given closing: the deadline calculator. State notes: state tax rates and 1031 exchanges.

Frequently asked questions

Can I act as my client's qualified intermediary?

Generally not, if you have acted as their attorney, accountant, broker or agent in the two years before the sale. The regulations treat such a person as disqualified (Treas. Reg. §1.1031(k)-1(k)).

How late is too late?

The exchange has to be in place before the sale closes. Once the client has received all the proceeds, or has the right to them, the transaction is treated as a sale (Treas. Reg. §1.1031(k)-1(f)).

Does my client need to have found the replacement property?

No. The client has 45 days after closing to identify replacement property in writing, and must receive it by the earlier of day 180 or the due date, including extensions, of the return for the year of the sale (26 U.S.C. §1031(a)(3)).

My clients own the building through a partnership and want to go separate ways. Can they exchange?

An interest in a partnership is generally not real property for section 1031 (Treas. Reg. §1.1031(a)-3(a)(5)(i)(C)), so partners cannot simply exchange their interests. Restructuring before a sale raises its own tax questions. Raise it early with the client's CPA. See 1031 exchanges and LLCs.

Will Leah work with the closing attorney or title company we already use?

Yes. The exchange is coordinated with the client's own closing attorney or title company, so that the proceeds go to the qualified intermediary at closing.

What should I tell my client before the introduction?

That the exchange has to be set up before closing, that it defers tax and does not eliminate it, and that Leah will explain the steps. Their own CPA decides how the rules apply to their return.

Who you would be introducing

Leah Badach is a Certified Exchange Specialist with 11+ years of 1031 exchange experience, covering standard, reverse and improvement exchanges for investors in all 50 states. The CES designation is awarded by the Federation of Exchange Accommodators after an examination, and you can verify it in the FEA CES directory. More about Leah.

Related: Exchange planning call for owners · Selling a rental property · 1031 exchange timeline · The rules · Questions to ask any qualified intermediary

Sources

• 26 U.S.C. §1031: qualifying property, the 45- and 180-day periods, boot and related parties.
• Treas. Reg. §1.1031(k)-1: receipt of proceeds, qualified intermediaries and disqualified persons.
• Treas. Reg. §1.1031(a)-3: partnership interests are generally not real property.
• Instructions for Form 8824: reporting, and the exchange period.

Educational information, not tax or legal advice.