Wall Street Journal article on 1031s

A heads-up message…

Interesting article in today’s Wall Street Journal about Sec. 1031 exchanges and the problems that some real estate investors have experienced when dealing with shaky qualified intermediaries…

Worth a read if you’re into like-kind exchanges… (In nutshell, the problem is that the QIs have your money and can do stupid things with it.)

Hey Steve, how does one become a qualified intermediary?

I don’t know. Sorry. I don’t think it’s particularly tough. (Obviously, I guess, considering some of the people who become QIs.)

I do think, though, that the Treasury Regs say it can’t be just anyone. Like if you or I are advising a tax client, we can’t just “be” the QI. Neither I recall can the escrow company or bank…

It needs to be someone who’s really just doing the QI thing.

The more I think about this, the more I think the Regs probably provide the definition. I will guess again, though, that it ain’t that tough… :beer

well, whoever finds out first, the other one can buy the beer.

Sounds good. :beer

You guys should review Treasury Reg 1.1031k. No one really goes through a qualification process to be a qualified intermediary, but instead is “left standing” after a series of disqualificatio tests. It would appear that if you can make it through to the end of the disqualifiers without being eliminated, you can be a qualified intermediary.

Just how I see it.

Er, DaveT, I think only people interested in being a QI need to read the relevant regs. And that group doesn’t include me. :smile

And on another point, I really question the reflexive decision to use Sec. 1031 with real estate.

I wonder if it doesn’t make sense to pay a 15% tax now rather than risk paying, e.g., a 28% tax in a few years…

I.e., maybe like kind exchanges (and tax deferrals) make less sense if rates are probably headed back up?

just like everything else, there is no “one size fits all” answer. What’s best will be determined by the particular facts and circumstances.

an investor may not realize enough cash in a deal to pay the tax, which requires cash. Even though the 1031 “may” result in more tax down the road, it may not, and it avoids the need to come up with cash today.

Does not include me either, Steve. I was just trying to help you and Mark settle his question so you can buy each other a beer. I apologize for interrupting your conversation with Mark.

Oh-oh. That’s funny. :biggrin Sorry.

BTW, on Wednesday this week (I think) thet WSJ had another article on QIs that said you basically don’t need to do anything. And that’s the “regulatory” problem…