Internet searches for various title-services and real-estate terms are, no surprise, seasonal and cyclical. Right now, related to the “business of real estate”, the highest trending searches are for “qualified intermediary” and “1031 exchange” information in our (Agency Title) service areas of Louisville and Bardstown, KY and Southern Indiana. Trending searches can reflect shifts in local markets and the greater, national economy. In this case, with interest rates still high, and real estate inventory staying fairly flat, investors see revenue opportunity in working with existing properties of decreasing demand (i.e. retail spaces) to meet rising demands for other types of property (i.e., senior-living homes and first-time buyer homes). Such is the status of real estate now in Kentucky and Southern Indiana, and across most of the U.S.
So, who is a “Qualified Intermediary”, and what is a 1031 Exchange, and why is there a rising search for each? The answers begin with this situation: If you are in the business of buying, developing and selling property, it doesn’t seem ‘fair’ (within tax law) to tax the capital gains for each transaction, if you are selling one property to fund the development of another property, to meet the needs of the market. (In the eyes of the IRS, the ‘profit’ isn’t being “cashed out”, but re-invested to meet market needs.) This situation meets tax code requirements for a 1031 exchange, where the proceeds from the sale of one property are being used to purchase a “like-kind” development property … and therefore not taxed as capital gains. One stipulation of this exchange, is that the funds are held by a third-party, “Qualified Intermediary”. In other words … you won’t be taxed on these funds, but someone else has to hold them until you re-invest them in another “like-kind” property. This cycle ultimately ends, if the developer decides to “cash out” and sell property for end use, and take the profits after paying the taxes on the capital gains.
So, who is a Qualified Intermediary? Agency Title is an example of an approved Qualified Intermediary, as we can hold the proceeds of investment property sales, and release them for purchase of like-kind properties. As an attorney-based title services company, we handle all aspects of the 1031 exchange, from managing the title transfers to verifying the legitimacy of the like-kind exchange, and providing all of the required paperwork for the tax returns.
From there, all of the details about property types and definitions of “like kind” properties, are largely case-by-case definitions (i.e., leisure spaces into rental units, etc.). We have more reading material on the topic, below, or feel free to contact us at Agency Title to discuss any specific properties and situations.
Other Agency Title Content Regarding Qualified
Intermediaries and 1031 Exchanges:
- 1031 Qualified Intermediary
- Does a Vacation Home Qualify as a
1031 Exchange? - Who Manages the 1031 Exchange
Process? - How Much Money Do You Have to
Re-Invest? - What Are the Requirements and
Rules for a 1041 Exchange? - Does it Make Sense to Do a 1031
Exchange? - What is a 1031 Exchange?
At Agency Title, we are very happy to discuss any aspects of real estate title services and transactions with realtors,
mortgage professionals and buyers/sellers. Please Contact Us with your questions through any of our four offices in Louisville, New Albany and Bardstown, and we look forward to the discussion!