A Warning to Those Who Use 1031 Exchanges

Real Estate Open Houses on Cape Cod Updates:
Please join me for a day filled with open houses this coming weekend, Saturday, June 2nd. The first, from 10 AM to 1 PM, is a home for sale in Dennis Port just 4 homes from Swan River. This home has been tastefully updated and offers instant access to summer fun!. This might be an ideal First Time Home Buyer property. You can get 97%, 100% to 105% financing with full documentation loan. These rates start as low as 5.375% Fixed for 30 years, if you qualify according to income limits. The second, from 2 PM to 4 PM, is a classic Cape Cod antique home for sale in move in condition. Imagine, a home built in 1780 that is rich with history that only requires new owners to claim this classic showpeice.

A Warning to Those Who Use 1031 Exchanges

Investors using 1031 exchanges to defer capital-gains taxes on an investment property they have sold can run into trouble if the Internal Revenue Service-required qualified intermediary, known as a QI, has financial trouble.

IRS regulations say that investors can’t touch the money from the sale of an investment property and must use a QI to manage the money while their search for a “like kind” property to invest in. The IRS doesn’t place restrictions on where the money is invested.

In the past year, at least two independent QIs have allegedly misappropriated client funds. In one case, businessman Donald McGhan is accused of operating a Ponzi scheme with money in his care — he lost more than $95 million of customer proceeds. The 1031 Tax Group has filed for bankruptcy protection after its principals lost $151 million through bad investments and loans.

The Federation of Exchange Accommodators, the qualified intermediaries' industry-trade group, says it has been working with states and the federal government to enhance oversight of the industry.

Source: The Wall Street Journal, Peter Lattman and Kemba Dunham (05/26/07)

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