In short
Who does what in a 1031: your CPA on basis and Form 8824, your attorney on contracts and entities, the intermediary on funds, and us on strategy and offerings.
A 1031 exchange has four seats at the table: your CPA, your attorney, the qualified intermediary and us. We do not replace the first two, and the regulations say the first two cannot be the third. This post sets out who does what before listing, between contract and closing, and after closing, so that nothing falls between seats. The short version: your CPA owns the numbers and the return, your attorney owns the contract and the entity, the intermediary owns the money, and we own the strategy, the offerings and the coordination.
Who cannot hold the money
The qualified intermediary safe harbor in Reg. section 1.1031(k)-1(g)(4) requires a person who is not a disqualified person, who “enters into a written agreement with the taxpayer (the ‘exchange agreement’)” and acquires and transfers the relinquished and replacement properties as the agreement requires. Paragraph (k)(2) makes a disqualified person of anyone who “has acted as the taxpayer’s employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the 2-year period ending on the date of the transfer of the first of the relinquished properties,” with an exception for services performed solely with respect to exchanges. Your CPA and your attorney therefore cannot be your intermediary, and neither can we. If you need one, we connect you to trusted intermediaries, and our page on whether an attorney, CPA or agent can serve as intermediary has the detail.
Before listing
Your CPA establishes the adjusted basis and projects the gain, including depreciation taken, and tells you what the state will claim. Your attorney reviews how title is held, because the taxpayer that sells must be the taxpayer that buys, and drafts the exchange cooperation clause into the listing and purchase agreement. We take the output of both, your goals, tax exposure and investment preferences, and lay out the strategies available, from a traditional DST to the advanced structures, and whether we are the right fit.
Three pages help this stage move faster: calculating adjusted basis on a rental for the CPA, the same taxpayer rule for the attorney, and our pre-sale checklist for everyone.
Between contract and closing
The attorney makes sure the contract is assigned to the intermediary with notice. Under Reg. section 1.1031(k)-1(g)(4)(v), the intermediary is treated as a party to the agreement if your rights “are assigned to the intermediary and all parties to that agreement are notified in writing of the assignment on or before the date of the relevant transfer of property.” The settlement agent then wires the proceeds to the intermediary, not to you.
The CPA reviews the draft settlement statement for lines that create boot, which we cover in why boot surprises so many sellers. We help coordinate identification with your intermediary within the 45 days, so the written identification names the right offerings in the right form, and we reserve equity in one or more offerings that meet your goals; if your sale falls through or your plans change, reservations are flexible. When you are ready, we prepare and organize the investment documents and help coordinate the transfer of funds from the intermediary to the selected trust or structure, a step that can often be completed in three to five business days.
Hypothetical dates: close the sale on June 1 and the 45th day thereafter is July 16; the 180th day is November 28, unless your return is due sooner, in which case an extension matters, as explained in does a tax extension keep the 180 days.
After closing
Your CPA files Form 8824 with the return for the year of the transfer, and for the two years after a related-party exchange. Where the relinquished property was in California, the CPA also files form FTB 3840 every year until the deferred gain is recognized. If you exchanged into one or more DSTs, the sponsor’s annual statements feed the return; our page on DST tax forms and reporting explains what arrives and when. Our post-exchange checklist is the handover list.
We stay connected after closing, monitor the investment and review the plan with you as conditions change, and when you need liquidity we help you look at what is realistic, including reselling your interests to other investors where possible, while being clear that real estate interests are illiquid.
What we do not do
We do not give tax advice that substitutes for your CPA’s, and we do not draft contracts. Where a question is tax or legal, we send it to your advisor with the authority attached, which is why our pages cite the Code and regulations rather than opinions. The reason that division matters is explained in can an exchange company give tax advice, and the full playbook for assembling and running the team is in coordinating your 1031 advisor team.
What to do now
- Send your CPA the purchase closing statement and depreciation schedule now, so the basis and gain are ready before the first offer.
- Ask your attorney to put an exchange cooperation clause in the listing agreement and purchase contract; see the exchange cooperation clause.
- Engage an intermediary before closing; if you do not have one, we will introduce you to one.
- Start with a proposal and copy your CPA on it.
