Many 1031 Exchange firms are affiliated with real estate brokerages that package and sell so-called Tenant-in-Common properties. These arrangements help sellers looking to defer capital gains by providing a ready-made property in which to invest proceeds from a recent sale. You own a fractional share of a larger property and defer capital gains on the sale of your current property.
In fact, many 1031 companies, or exchange accommodators as they are sometimes called, are primarily brokerages that provide 1031 exchange services as a way to generate clients for their tenant-in-common properties, on which they make very nice commissions.
There’s nothing inherently wrong in this arrangement, but to me it means the actual details and logistics of the 1031 exchange are not the companies’ primary focus, and this can lead to trouble.
The IRS has established very strict exchange guidelines that must be followed or the exchange is invalid, subjecting the taxpayer to big tax liabilities. Missing even one seemingly small or inconsequential step can invalidate the whole exchange.