What are people paying in fees for a 1031 exchange?

Question

I'm trying to initiate a 1031 with a qualified intermediary, and have been quoted up to $3k for fees. Previously we were involved with one in a different state and they were only about $1k, but this was a few years ago. What are equity exchangers charging these days where you are from? Can I use any intermediary anywhere in the country, or do I need to use the ones in my state where my property is? I'm also looking to keep this between LLC's, and couldn't seem to get a sufficient answer from the lawyer I talked with. So I want to sell property from one LLC, and then buy a different property under a different LLC. Both are owned by me. Is the IRS going to allow that?

Dave Foster · Answer

@Michael Rutkowski, That makes more sense.  But it still doesn't work initially.  Because the tax payer for the old property has to be the tax payer for the new property.  So when corp 1 sells and does the 1031 it will have to take title to the new property initially to satisfy 1031.

BUT... if the companies you talk about are all LLCs, you are the only member and all activity of the companies is reported on your schedule C as you say.   Then the taxpayer for all of them is you (or rather your personal tax return).  In that case all of those companies are considered disregarded entitites.  And you could sell a property owned by one and 1031 purchasing in a completely different one - as long as it too is a disregarded entity.

When you said this - This isn't just a shell LLC, but an actual business which owns the property. I actually pay most of my taxes through this company in Schedule C. The other company also has Schedule C income... and so that's where I'm confused. If I own both 100%, and both are on my personal tax returns,... It finally started looking to me like you can do what you want.

The more I read what you're posting it's slowly becoming more clear.  We've both connected via pm.  We can continue with a discussion.

Dave Foster · Answer

@Michael Rutkowski, Your idea of selling from one LLC owned by you and purchasing from another LLC also owned by you is a non-starter.  The IRS is going to see that as you buying from yourself unless you own  50% or less of one of those LLCs.

You can use any intermediary as long as they have a national footprint.  1031 is a federal statute so it's form is the same nationwide.  QIs need to have the technological reach and available customer service to handle non-face to face closings.  I'd say that probably 50% of our closings start in one state and end in another anyway.  So location of your QI is not important.  Service is.

Here's an article we update periodically on costs nationwide for a 1031 exchange - https://www.biggerpockets.com/...

Robert Carpenter · Answer

@Dave Foster  Great to hear and thanks for the good news !

Basit Siddiqi · Answer

@Michael RutkowskiWhether you should speak to a CPA or Attorney regarding questions you have on a 1031 depend on the specialty of the professional itself.Did the attorney you speak with specialize in taxation / real estate transfers? If yes, then should have known the answer.If the attorney instead specialized in securities or international law, then it is understandable that they don't know the answer.Did you pay the professional for their time? If you didn't and you just expected an answer, I might not have called you back either without some sort of payment.The same thing can be said for CPA's

Dave Foster · Answer

@Robert Carpenter, Yes, I'm feeling pretty positive.  On the legislative front the Senate sent it's non-binding version on the tax bill to the House several weeks ago.  The last amendment to the bill was a stipulation that no change be allowed to 1031.  It passed unanimously.

Then the House Ways and Means committee I believe sent their first draft out and it too had no changes to either the step up in basis or 1031.

So while your money's never safe while congress is in session it's looking pretty positive for real estate investors right now.

Robert Carpenter · Answer

@Dave Foster Just wondered if you have a sense as to whether 1031 exchanges will   continue  to be permitted.

Michael Rutkowski · Answer

Ok, so I did confuse the lawyer with my question also, but I guess I should word this better: The property is owned by one of my companies. I would like to sell this property, then buy a completely new property, not transfer ownership to another company. I would like to buy the new property under a different company name. So in fact, there are two separate companies, dealing with two separate properties. I was eventually told this would be ok, but it took a few minutes of clarification with a lot of "Uhhhhs" and "Hmmmms". So that's something I would like to verify. I was also supposed to get a call by the end of the day on this, and have not, so perhaps I may be talking to the wrong company. Maybe I should be talking with a real estate CPA instead of a lawyer?

This isn't just a shell LLC, but an actual business which owns the property. I actually pay most of my taxes through this company in Schedule C. The other company also has Schedule C income... and so that's where I'm confused. If I own both 100%, and both are on my personal tax returns, then it seems I can get away with it.

I may just file a quit claim, as this seems to be confusing everyone including myself. Good to know about price, and $1k is exactly what it cost before. So maybe a heads up to others out there.

Steve Vaughan · Answer

I generally pay $1000 for a 1 to 1 plus $250 each additional replacement.

Justin Hoggatt · Answer

Michael, you're looking for a qualified intermediary.  You can use who'd you like to use on that and there are a lot of great companies out there - not state specific.  The cost should be no more than $995 to get it done.  If you talked to someone and they couldn't answer your questions, it's the wrong person.  The IRS only allows you to transfer within the same ownership.  Now, there are way around that, and I've done one where I setup an LLC that is owned by the other LLC and that satisfied both the lender and the laws.  A good intermediary will walk you through all of this exactly how you want and what's allowed.

What are people paying in fees for a 1031 exchange?

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