Experienced 1031 Exchange Accommodators Have This in Common

1031 Pros
Jul 12
4 min read

Finding and hiring a 1031 exchange accommodator is a critical part of avoiding capital gains taxes. As a real estate professional, you may know that you need one. However, you may be unsure about how to hire one. Look for things like experience, bonding, membership, and proof of continuing education to ensure you’re working with the right person.

What Is a 1031 Exchange Accommodator?

An exchange accommodator (sometimes called a qualified intermediary) is a required part of your 1031 exchange process. Finding the right person is critical to ensuring a successful and smooth process.

A 1031 exchange accommodator facilitates your transaction. This professional holds the money from the sale of one investment property and releases it for the purchase of another. Since the investor never touches the money, the transaction isn’t subject to capital gains tax.

This person is holding your money, so it’s important to ensure they’re trustworthy. However, since they’re handling the details of your critical transaction, they must have appropriate experience too.

9 Things Experienced Professionals Share

The IRS explains that a 1031 exchange accommodator is required. However, the IRS doesn’t identify what sets an expert apart from an amateur. Here’s what to look for:

1. Extensive Experience

A 1031 exchange is a complex transaction that involves several moving pieces. Typically, it takes time to learn about how they work. Don’t hire someone who is learning while on the job. Ensure that your 1031 exchange accommodator has worked on plenty of these real estate deals in the past.

Before you hire a qualified intermediary, ask about past transactions. Better yet, ask for references from happy clients who have worked with this person in the past.

2. Bonding & Insurance

Your qualified intermediary will hold your funds for up to 180 days. It’s a risky time, especially if your professional isn’t prepared.

Your 1031 exchange accommodator should have business insurance. Ask for proof of that policy and check the details.

Your qualified intermediary should also be bonded. Someone who is bonded has enough funds in reserve that they can release them to clients if they’re asked to do so. Think of bonding as an added layer of protection to ensure you don’t lose all of your investment.

Ask for proof of bonding, and ensure it’s enough to keep you protected. Don’t skip this step.

3. Proper Membership

Experienced 1031 exchange accommodators like to learn and collaborate with other professionals. Membership in the Federation of Exchange Accommodators shows that the person you’re about to hire is truly dedicated to the profession and your future.

The Federation of Exchange Accommodators was formed in 1989, and it helps to promote ethical standards for people who handle 1031 exchanges. They offer education to ensure that professionals follow best practices. They also help to create rules and regulations for these transactions.

Ask if your potential partner holds membership in this organization. It’s a sign they are serious about their work.

4. Specialization

The ideal 1031 exchange accommodator works only on these types of transactions. They know the ins and outs of these real estate deals, and since they specialize in them, they’re up-to-date in how they work and what should be done at each stage.

Many people (such as lawyers and accountants) could handle your 1031 exchange. However, as the IRS explains, some qualified intermediaries have left their clients in dire circumstances. They went out of business, and since the money was in limbo, the transaction became taxable.

Ensure that the person you hire works only on 1031 exchanges. Someone like this is less likely to leave you in financial difficulty.

5. Document Management Skills

A 1031 exchange involves several types of documents. For example, your qualified intermediary should draw up a contract that explains your role and how the professional will help you. Your accommodator should also help you create documents that identify your replacement property in accordance with IRS rules.

Your potential partner should have extensive experience in both creating documents and managing them. Don’t be afraid to ask about this skill.

6. Tax Law Expertise

Law schools tell their students that every lawyer should know about taxation. However, your qualified intermediary must do more than dabble. A 1031 exchange is a method investors use to deflect some types of taxes, after all.

Your ideal professional should be very capable of explaining how taxes work and what your responsibilities are after the sale. If the professional you’re speaking with seems weak in this area, it’s a sign that they aren’t right for you.

7. Extensive Network

Experienced 1031 exchange accommodators can connect you with other key members in a real estate transaction. For example, the right professional will be able to connect you with real estate agents, appraisers, and brokers. With the right team in place, your deal will move much more smoothly.

8. Advanced Communication Skills

While your 1031 exchange moves forward, you’ll speak to your facilitator multiple times. You might have questions about how the process works, what you should do, what risks are involved, and more. While a 1031 exchange is very technical, your professional should be able to explain each step and answer every question in terms you can understand. You may notice this skill the first time you meet with a potential qualified intermediary.

9. Proof of Professional Development

Experienced qualified intermediaries are dedicated to their profession, and they often take classes and attend seminars to build their skills. Before you hire someone to work on your transaction, ask how they stay abreast of the latest rules and regulations. They should be able to tell you about recent courses they’ve completed.

Access a Team of 1031 Exchange Intermediaries

At 1031 Pros, we specialize in 1031 exchanges. These are the only types of transactions we work on, and everyone we hire has extensive experience and a drive to help clients succeed.

When you choose 1031 Pros, you’ll be working with people who know exactly how to handle these difficult and detailed real estate transactions. And every staff member has all of the qualifications we’ve mentioned above. Contact us to get started.