Today, most 1031 tax deferred exchanges are known as deferred exchanges. In other words, when you effectively sell your property, you are not sitting across the table and exchanging title with another property owner; therefore, you are doing what is known as a deferred exchange. To qualify to defer taxes through the 1031 exchange, you must follow certain regulations, the most crucial of which is not to take aƫective possession or control of the proceeds of your sale. When you sell a property eƫectively, the money the equity from that sale is to go not to you but to accompany your hire to hold your funds for you. If the funds go to your account, they will be taxed, and you cannot defer your taxes. So, the role of the qualified intermediary is to hold your money for your benefit, and then, when you make your purchase, you can purchase it on your behalf. Why are funds for the property?
You are legally relinquishing control of your money to an entity you hire, and you must ensure you’re utilizing a reputable firm. We work with many exchange accommodators, and Beacon1031 maintains a list of exchange accommodators we can share with you upon request.
In the case of the Delaware Statutory Trust (DST), since that entity is a real estate syndication (security), certain laws and regulations must be followed when processing purchases; in practice, it is impossible to do a simultaneous exchange; therefore, you must do a deferred 1031 exchange, and you are required to use a qualified intermediary is also known as an exchange accommodator.
1031 Risk Disclosure:
· There is no guarantee that any strategy will be successful or achieve investment objectives;
· Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
· Change of tax status – Any investment property’s income stream and depreciation schedule may affect the owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel the deferral of capital gains and result in immediate tax liabilities;
· Potential for foreclosure – All financed real estate investments have the potential for foreclosure;
· Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.
· Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
· Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits
General Disclosure:
There is no offer to buy nor a solicitation to sell securities. All investing involves the risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional before investing. Any information provided is for informational purposes only.
Securities through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with other entities identified in this communication.
For more information on Emerson Equity, please visit FINRA’s Broker Check website. You can also download a copy of Emerson Equity’s Customer Relationship Summary to learn more about its role and services.
DISCLAIMER:
As required by the IRS, we inform you that the information posted on this website or blog does not contain anything intended to be legal. Or tax advice and nothing herein can be relied upon as legal or tax advice. Nothing in this post can be used for (1) avoiding tax-related penalties under the Internal Revenue Code or (2) promoting, marketing, or recommending to another party any tax-related maƩer addressed herein. If assisting with your Section 1031 tax-deferred exchange, Beacon1031 cannot advise the owner concerning specific tax consequences or the advisability of a tax-deferred exchange for tax purposes; however, we do provide information that can be the basis of questions for a tax advisor. We recommend that anyone contemplating an exchange seek the advice of an accountant and/or attorney familiar with real estate tax regulations.