Oct
22
First, the real estate part:
A 1031 Exchange, also known as a Like Kind Exchange, is a way of structuring a sale of certain kinds of property so that the seller’s profit or gain is not currently taxed. Instead, the property that is sold is replaced with another “like kind” property. If the transaction is properly structured, the seller’s profit or gain is deferred to a future date.
Section 1031 of the Internal Revenue Code:
No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.
Next, the scam part:
The Internal Revenue Service doesn’t want investors touching their money during a 1031 exchange. Anyone who wants to do this transaction must entrust their money to someone they don’t really know. It can’t be their lawyer, their real estate broker, their lender, or their friend. It has to be a qualified intermediary, according to IRS rules.
There are no actual qualifications to become a qualified intermediary. Sometimes, these qualified intermediaries will take your money and run.
You hand them all the equity in your house, and they blow it on whatever they want. Your 1031 fails, and you then end up owing capital- gains taxes on money that was basically stolen from you. Your only recourse is to sue.
If you love reading about real estate scams then read the full article: Legal tax deal could cost you
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