by: Bryce Smith
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Most investors agree that utilizing a 1031 tax deferred exchange is definitely one of the best ways to go when interested in obtaining and selling property without the worry of paying large capital gains taxes. However, there are certain costs and transaction fees involved with a 1031 real estate exchange, which will usually depend upon the amount of risk that the Qualified Intermediary is taking, which is considered fair compensation. This is separate from the normal services they provide.

The Qualified Intermediary gets approximately two thirds of their revenue from the 1031 tax deferred exchange interest. This is the money that is obtained from the interest on the deposits that are held by the QI's, as they can hold the interest on the funds deposited with them on your deferred 1031 exchange money. They also have the option to share a full portion or only some of the income that is generated from that interest.

Using a fee structure is a clear and fair way to pay for the services rendered by your Qualified Intermediary. This structure should be evaluated, negotiated and understood clearly by everyone involved in the 1031 tax deferred exchange. The size of the exchange transaction does have a direct affect on the amount of risk involved, as the QI is exposed equally to the gains in interest income that is held by them.

Some Qualified Intermediaries can market their fee structure for a 1031 exchange to appear less expensive that others, however once you consider all of the facts, especially the interest income retained by them, you should be able to make an informed choice.

The fee structure used for paying the Qualified Intermediary for your 1031 tax deferred exchange needs to be negotiated and understood completely by all involved parties. Keep in mind that the size of the 1031 like kind exchange will have a direct impact on the amount of risk that they are exposed to, with regard to the interest income gained from the deposits they retain.

About the Author

A 1031 tax deferred exchange is typically utilized by an individual who wants to sell an investment property, without having to pay any taxes. Sound too good to be true? Find out more about the 1031 exchange at Info 2 Go.

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