1031 Exchanges and the Role of the Agent
By David P. Greenberger, Esq.
While most real estate transactions that are conducted in the United States
have a real estate agent involved, not many of them are clear about their
role in the 1031 Exchange.
What should the role of the agent be with the principals in the transaction
and what duties, if any, can the agent perform to help the transaction
along?
The agent is the party that should be out in front of the crowd, bringing
the taxpayer (exchanger) to the table to sign Purchase and Sale contracts
facilitating the transaction. As it relates to a 1031 exchange,
the agent's role, simply stated, is an assistant to the principals. The assistance needed most is to ask the right questions. They are listed below and should be directed to the taxpayer:
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Are you considering selling or buying any property for investment
or business purposes?
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Are you considering putting any of your equity
from one property into another?
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Are you considering selling
any property and buying any other property within 6 months
of each other?
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Can I put you in touch with an accommodator who can give you
basic information and guide you through your particular facts
and situation?
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Do you need further advice or information from a tax advisor?
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Have you got a clear plan for your real estate?
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Should you
be considering new categories of real estate or regions for
your replacement properties?
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Should you start looking for replacement properties
now so that you give yourself more time than the prescribed
6 months from close of the relinquished property?
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Are you aware your deposit
for the replacement property may come from the exchange account
you set up once you have sold your first property in the exchange?
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Should I follow up with you once you have closed on your replacement
property to track performance and help you decide whether you
might want to enter into another exchange on additional properties you
may own or to discuss a reverse exchange when new properties become available?
In short, the agent should be the prompter and guide to move the
transaction along and open up new questions in the seller's mind to increase possibilities and create an exchange which requires both a sale and a purchase within six months.
What should the agent not do? The agent should not offer tax or legal
advice, but instead raise the questions above and guide the client to competent
professionals that can offer the client peace of mind in their plans.
If agents fill the role of prompter and raise the questions, more people
will investigate and use exchanging to save taxes, which is good for the
real estate marketplace. A more fluid real estate market creates a more
vibrant real estate market by encouraging more people to join in it. This
translates into more returns for investors.
Additionally, many exchanges do not become reality simply because of lack
of planning. Exchanges which require planning include those in which title
is held in partnerships or multiple member LLC's.
With proper advance planning, a partner may exchange his interest, but
many times is not aware that a tax free exchange is even possible.
More wealth is created for investors if the proceeds
of a sale are put into the new purchase rather than carving off a healthy
portion of profits to the government. The taxpayer who did not conclude
the exchange not only gave over some of his hard earned profits unnecessarily,
but also, did not necessarily find a replacement property within six months
and so the market may have easily moved out of reach as time passes this
investor by.
It is easy to see how the real estate agent is
in the best position to help investors and generate
new opportunities for transactions by suggesting
exchanging. The agent can enlighten the investor
and help him build wealth through a better real
estate plan while the agent becomes distinguished
as the one who set the investor on the right track.
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