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  • Writer's pictureStuart Dobson

1031 Exchange: 5 Tips on the process and 5 questions to ask your broker

A 1031 exchange can be a great way for investors to defer capital gains taxes. We’ve worked with 1st timers and seasoned investors here in Colorado. Here are some tips you should consider as well as questions to ask a commercial broker about the process.

5 Tips:

  1. Plan ahead: A 1031 exchange requires careful planning and coordination, so it's important to start thinking about the possibility of an exchange as early as possible. This will give you more time to identify potential replacement properties and ensure that you have enough time to complete the exchange before the deadlines set by the IRS.

  2. Choose a qualified intermediary carefully: The qualified intermediary plays a critical role in the 1031 exchange process, so it's important to choose one that you trust and that has a good track record. Look for an intermediary with experience facilitating exchanges and a reputation for honesty and reliability.

  3. Understand the deadlines: There are strict deadlines that must be met in order to complete a 1031 exchange. You must identify the replacement property within 45 days of the sale of the relinquished property, and you must close on the purchase of the replacement property within 180 days of the sale of the relinquished property. It's important to be aware of these deadlines and plan accordingly.

  4. Consider the benefits and drawbacks: A 1031 exchange can be a useful tool for deferring taxes on the sale of an investment property, but it's important to consider both the potential benefits and drawbacks. In some cases, it may be more advantageous to pay the taxes and keep the proceeds from the sale, rather than using them to purchase a new property.

  5. Seek professional advice: Completing a 1031 exchange can be complex and there are many rules to follow. It's a good idea to seek the advice of a qualified tax professional or attorney who can help you understand the process and ensure that you are in compliance with all relevant laws and regulations. If your property is being sold or bought in Colorado, you should also consult with a 1031 commercial real estate broker in Colorado. Brokers can add a ton of value as they can help find you replacement properties and advise you along the way.

Questions to ask a commercial real estate broker when doing a 1031 exchange.

  1. What is your experience with 1031 exchanges? It's important to work with a broker who has experience with 1031 exchanges, as this can help ensure that the process goes smoothly and that all necessary deadlines are met.

  2. What properties do you currently have available that could potentially be used as replacement properties in a 1031 exchange? It's helpful to work with a broker who has access to a wide range of properties that could potentially be used in an exchange.

  3. Can you help me find properties that meet the requirements for a 1031 exchange? It's important to ensure that any properties being considered as replacement properties meet all of the requirements for a like-kind exchange, such as being used for business or investment purposes and being of the same type or character as the relinquished property.

  4. How can you help me structure the exchange to maximize the tax benefits? While skilled broker can help you buy/sell properties, it's best to speak with a 1031 Exchange intermediary, tax advisor and/or lawyer. They can help structure an exchange in a way that maximizes the tax benefits and minimizes any potential tax liabilities.

  5. Can you recommend any qualified intermediaries or other professionals who can assist with the exchange process? A broker who has worked with 1031 exchanges in the past may have relationships with qualified intermediaries or other professionals who can assist with the exchange process. It can be helpful to get recommendations from your broker to ensure that you are working with reputable and experienced professionals.

Looking to execute a 1031 exchange in Colorado? Let’s talk and see if we can help!

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