1031 Exchange Cancellation Fees

If you call a qualified intermediary on short notice and ask them to prepare a set of 1031 exchange documents, they're going to jump through a lot of hoops – collecting information, reading the purchase agreement and title report, interfacing with the escrow and title company, and generating some very technical 1031 documents that are specifically tailored to your transaction.

Cancelling a 1031 Exchange at the Last Minute

What if the seller decides to not do a 1031 exchange after having this fire drill to prepare their 1031 documents? That's fine - you don't have to do a 1031 exchange. It's a free country. But you probably have a moral and perhaps legal obligation to compensate the qualified intermediary for stopping everything and working exclusively on your transaction to get the 1031 prepared.

It's common if the intermediary has prepared, circulated, and sent out your 1031 documents for the intermediary to charge a cancellation fee if, before the closing of the relinquished property, the taxpayer decides not to proceed with the 1031 exchange.

• Start Your 1031 Exchange: If you have questions about 1031 exchange cancellation fees, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

What is a Third-Party Administrator in a 1031 Exchange?

The treasury regulations have various safe harbors for 1031 exchanges. One of these is the qualified intermediary (or QI) safe harbor. The qualified intermediary acts as a neutral third party administrator unbeholden to the taxpayer to facilitate or administer The 1031 exchange.

What a Third-Party Administrator Does

The third-party administrator typically prepares the 1031 documents, provides instructions to the settlement agent, and most importantly holds the proceeds from the relinquished property so that the taxpayer or exchangor does not have any actual or constructive receipt of the net proceeds or 1031 funds.

Who Can be Your 1031 Third-Party Administrator?

The regulations in the Internal Revenue Code prohibit the administrator from being anyone that has in the last two years been an agent or employee of the taxpayer. So your attorney, your account, and your employees are all disqualified from acting as your administrator. Also, related parties such as your mother, or your son, or other relatives are excluded or prohibited from acting as your 1031 third-party administrator. The idea is that the qualified intermediary should be unbeholden, unrelated, and acting independently of the taxpayer or exchangor doing the exchange.

• Start Your 1031 Exchange: If you have questions about the role of the third-party administrator in a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Tips for Working With Your Qualified Intermediary

What are some tips for working with a qualified intermediary during your 1031 exchange? The qualified intermediary has a difficult job in that oftentimes they get pulled into a transaction late in the process and have to work quickly to gather the information and details needed to draft the 1031 documents and closing instructions.

Start Your Exchange Early

The first step is to start early to engage your qualified intermediary at about the same time that you're signing the sale agreement for the sale of your relinquished property. Sometimes people want to sit on the sidelines and not engage their intermediary until they know the buyer is going to preform and close. They may say “I'm going to wait until the inspection period is over, or I’m going to wait until the buyer waives all their contingencies.”

But the problem with waiting until the eleventh hour is it can be a real fire drill to gather all the information and details necessary for the intermediary to properly draft and tailor make the 1031 documents specific to your situation.

What to Provide Your Intermediary

Tip one is to start early and to provide the intermediary with the particulars for the taxpayer such as:

• Their address

• Their tax ID number or social security number

• The name and contact information of the title closer or escrow company

• The specifics about the property that's being sold such as the address, legal description, and how you’re vested in title

By teeing up the exchange early you give the intermediary time to prepare and coordinate with the title company or escrow company that’s closing the transaction. If you wait until the last minute you may not get the best product or service and it can be very upsetting and stressful to the other parties in the transaction that may have to change their documentation or respond to this unforeseen change in the plan and that can be stressful for everyone.

• Start Your Exchange: If you have questions about keeping your exchange funds secure, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

What is a Qualified Intermediary?

In this 1031 FAQ video, Jeff Peterson talks about the functions of a qualified intermediary in a 1031 exchange. Watch more 1031 educational videos here.

• Start Your 1031 Exchange: If you have questions about qualified intermediaries in a 1031 exchange, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Can Anyone Act as a Qualified Intermediary?

In this 1031 FAQ video, Jeff Peterson talks about who can and cannot act as your qualified intermediary in a 1031 exchange. Watch more 1031 educational videos here.

• Start Your 1031 Exchange: If you have questions about 1031 qualified intermediaries, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved