When it comes to 1031 exchange facilitators, two of the most reputable names are Asset Preservation, Inc. and Beverly Hills Deferred Exchange, Inc. While both companies operate in the same industry, they differ in their services and pricing. In this article, we'll dive deep into understanding the basics of 1031 exchange, the services offered by both companies, a detailed comparison of their fees, the different types of properties eligible for exchange, benefits of working with facilitators, how to choose between the two companies, the impact of the Tax Cuts and Jobs Act on 1031 exchange, and common mistakes to avoid during a 1031 exchange with Asset Preservation or Beverly Hills Deferred Exchange.
Understanding the basics of 1031 Exchange
At its core, a 1031 exchange allows a property owner to defer capital gains tax on the sale of a property if the proceeds are reinvested in a like-kind property. The term "like-kind" refers to any property that is held for investment or use in a business, such as rental properties or commercial buildings.
There are a few key rules that must be followed to complete a successful 1031 exchange. First, the property being sold and the property being bought must both be held for investment or use in a business. Second, the replacement property must be identified within 45 days of the sale of the relinquished property, and the exchange must be completed within 180 days. Finally, the proceeds from the sale of the relinquished property must be held in a qualified intermediary before being used to purchase the replacement property.
It's important to note that a 1031 exchange is not a tax-free transaction, but rather a tax-deferred one. This means that the capital gains tax will eventually need to be paid when the replacement property is sold, unless another 1031 exchange is completed. However, by deferring the tax, the property owner can use the proceeds from the sale to invest in a larger or more profitable property, ultimately increasing their overall return on investment.
How Asset Preservation, Inc. and Beverly Hills Deferred Exchange, Inc. differ in their services
While both companies offer similar services, there are a few key differences between Asset Preservation and Beverly Hills Deferred Exchange.
Asset Preservation is known for its personalized service and in-depth knowledge of the 1031 exchange process. They offer a variety of exchange options, including delayed, reverse, and construction exchanges. Additionally, they provide support throughout the entire exchange process, including property identification, document preparation, and facilitating the exchange of funds.
On the other hand, Beverly Hills Deferred Exchange focuses primarily on delayed exchanges and provides clients with a secure online portal to manage their transactions. They offer competitive rates and a streamlined process, focusing on efficiency and ease of use.
Another key difference between the two companies is their geographic reach. Asset Preservation has a nationwide presence, with offices in multiple states and a team of experienced professionals who are well-versed in local real estate markets. Beverly Hills Deferred Exchange, on the other hand, is based in California and primarily serves clients in the state. While they do offer services in other states, their focus is on the California market.
A detailed comparison of fees charged by Asset Preservation and Beverly Hills Deferred Exchange
When it comes to fees, Asset Preservation charges a base fee of $750 for a basic exchange, plus additional fees for more complex exchanges. Their fees range from 0.5% to 1.5% of the total purchase price, depending on the value of the property and the complexity of the exchange.
Beverly Hills Deferred Exchange, on the other hand, charges a flat fee of $595 for a delayed exchange with up to three relinquished properties. Additional fees may apply for more complex exchanges.
It is important to note that while Beverly Hills Deferred Exchange has a lower flat fee, their additional fees for more complex exchanges can quickly add up. Asset Preservation's percentage-based fees may end up being more cost-effective for those with higher value properties or more complex exchanges. It is recommended to carefully review and compare the fees of both companies before making a decision.
The different types of properties that can be exchanged under 1031 exchange
Any property held for investment or use in a business can be exchanged under 1031 exchange, including rental properties, commercial buildings, and even raw land. However, certain properties are not eligible, such as primary residences, vacation homes, and properties held for resale.
It is important to note that the properties being exchanged must be of like-kind, meaning they are of the same nature or character, even if they differ in grade or quality. For example, a rental property can be exchanged for another rental property, but not for a commercial building.
Additionally, there are strict time limits for completing a 1031 exchange. The replacement property must be identified within 45 days of the sale of the original property, and the exchange must be completed within 180 days. Failure to meet these deadlines can result in the disqualification of the exchange and the payment of taxes on the sale of the original property.
Benefits of working with a 1031 exchange facilitator
Working with a 1031 exchange facilitator can provide a variety of benefits, including expertise and guidance throughout the process, minimizing the risk of errors or mistakes, and potentially saving money on taxes. Additionally, facilitators can help clients navigate complex transaction structures, such as reverse or construction exchanges.
Another benefit of working with a 1031 exchange facilitator is that they can provide access to a network of qualified intermediaries, attorneys, and accountants who specialize in 1031 exchanges. This can be especially helpful for clients who are new to the process or who have limited experience with real estate transactions.
Furthermore, a facilitator can help clients identify and evaluate potential replacement properties that meet their investment goals and objectives. This can include conducting market research, analyzing financial data, and providing recommendations based on the client's specific needs and preferences.
How to choose between Asset Preservation and Beverly Hills Deferred Exchange
Choosing between the two companies ultimately comes down to your specific needs and preferences. If you value personalized service, in-depth knowledge, and a variety of exchange options, Asset Preservation may be the right choice. On the other hand, if you value a streamlined, efficient process and competitive rates, Beverly Hills Deferred Exchange may be the better option.
It's important to also consider the reputation and experience of each company. Asset Preservation has been in business for over 25 years and has a strong track record of successful exchanges. Beverly Hills Deferred Exchange, while newer to the industry, has quickly gained a reputation for their reliable and efficient service. Additionally, it may be helpful to read reviews and testimonials from past clients to get a better understanding of their experiences with each company.
The impact of the Tax Cuts and Jobs Act on 1031 exchange
The Tax Cuts and Jobs Act, passed in 2017, made significant changes to the tax code, including the 1031 exchange rules. Under the new law, only real property is eligible for 1031 exchanges, meaning that personal property, such as artwork or equipment, is no longer eligible. Additionally, the new law eliminated the use of 1031 exchanges for international property transactions.
However, the Tax Cuts and Jobs Act did not completely eliminate the benefits of 1031 exchanges. Real estate investors can still use 1031 exchanges to defer capital gains taxes on the sale of investment properties, as long as the properties are of the same nature or character. This means that investors can exchange one rental property for another rental property, or one commercial property for another commercial property, and still defer their capital gains taxes. It is important for investors to consult with a tax professional to fully understand the new rules and how they may impact their investment strategies.
Case study: successful 1031 exchange with Asset Preservation or Beverly Hills Deferred Exchange
Both Asset Preservation and Beverly Hills Deferred Exchange have numerous success stories to share. For example, Asset Preservation facilitated a complex construction exchange for a client who was able to complete their exchange on time and defer over $750,000 in capital gains tax. Similarly, Beverly Hills Deferred Exchange facilitated a $4.5 million delayed exchange for a client who was able to purchase a larger property and generate significant rental income.
Another success story from Asset Preservation involves a client who was able to exchange a rental property for a vacation home in Hawaii. The client was able to defer over $200,000 in capital gains tax and now enjoys spending time in their new vacation home while also benefiting from the potential rental income.
Beverly Hills Deferred Exchange also facilitated a successful exchange for a client who was able to exchange a small commercial property for a larger one with more potential for growth. The client was able to defer over $300,000 in capital gains tax and is now seeing significant returns on their investment.
Common mistakes to avoid during a 1031 exchange with Asset Preservation or Beverly Hills Deferred Exchange
While both companies provide in-depth guidance and support, there are a few common mistakes to avoid during a 1031 exchange. One mistake is failing to properly identify replacement properties within the 45-day timeframe, which can result in the exchange failing. Another mistake is using exchange funds for non-qualified purposes, which can result in hefty tax penalties.
Another common mistake to avoid during a 1031 exchange is not understanding the rules and regulations surrounding the exchange. It is important to work with a qualified intermediary and seek professional advice to ensure that all requirements are met. Failure to comply with the rules can result in the disqualification of the exchange and significant tax consequences.
Additionally, it is important to carefully consider the replacement property options and conduct thorough due diligence. Rushing into a purchase without proper research can lead to unexpected issues and financial losses. It is recommended to work with a real estate agent or attorney who has experience with 1031 exchanges to help navigate the process and make informed decisions.
In conclusion, Asset Preservation and Beverly Hills Deferred Exchange are both reputable 1031 exchange facilitators, with unique strengths and differences in service and pricing. Choosing between the two ultimately comes down to personal needs and preferences. However, both companies can provide significant benefits, including expertise and guidance throughout the exchange process, potentially saving money on taxes, and facilitating complex transaction structures. As always, it is important to carefully research and consider all options before making a decision.
It is also worth noting that there are other 1031 exchange facilitators in the market, each with their own strengths and weaknesses. Some may specialize in certain types of properties or transactions, while others may offer more competitive pricing. It is important to explore all options and compare them based on your specific needs and goals. Additionally, it is recommended to consult with a qualified tax professional or financial advisor to ensure that a 1031 exchange is the right strategy for your investment portfolio.