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An Investor's End: 1031 Exchange Bankruptcy

Although the concept of property exchanges in order to postpone the payment of capital gains taxes for a time can bring great rewards to the investor that utilizes Section 1031 of the Internal Revenue Code wisely, it may also bring great disaster and loss of revenues. The industry that has grown around the role of the qualified intermediary, although legitimate, is largely unregulated. The bankruptcy of a company fulfilling the role of a qualified intermediary can mean 1031 exchange bankruptcy for the investors due to the loss of the millions of dollars held in trust waiting for the completion of various Section 1031 exchanges. At present time, only the state of Nevada regulates the business of qualified intermediaries, helping at least in-state to prevent 1031 exchange bankruptcy. The role played by the qualified intermediary is crucial to the entire exchange process. Many people rush to fill the demand of these roles, hoping to own a piece of the career field. Section 1031 requires that an uninterested third party holds the funds in exchange transactions, and that this party handles all of the paperwork involved. As a result, there has been an explosion in the sort of firms that offer these services to investors, resulting in a sudden increase of 1031 exchange bankruptcy reports. In the past, investors turned to firms and individuals they could trust; now they may simply turn to the first firm they see advertised. Because not all companies are properly bonded, investors should check the credentials of the firms; if the firm’s bonding company does not cover money involved in a Section 1031 exchange, 1031 exchange bankruptcy could pursue for all parties involved. Many investors are forced to reconcile with the money lost from dealing with large national firms that suddenly file for bankruptcy.It is a distinct possibility that many of the investors involved with these firms will never their money again; Section 1031 exchange bankruptcy is always a risk in these ventures. This is particularly distressful in the case of the small investor trying to build a retirement nest egg that now finds his hands to be complete empty. Many real estate investors face not only the loss of the funds they placed in trust with the company, but their deposits on new investments as well, along with the fact that they may have to pay their deferred capital gains taxes after all is said and done. The main problem underlined by 1031 exchange bankruptcy is the fact that funds are placed in a commingled account when in fact, although more expensive, it is much safer to place them in individual accounts. Since the investor is not allowed to touch the money at any point during the exchange, the qualified intermediary is in charge of all funds; he gathers them and technically can do whatever he pleases with them, including lead the investor toward 1031 exchange bankruptcy. With the state of the industry being as it is, the investor is wise to insist the funds from the proceeds of his 1031 exchange be kept in a segregated account.Section 1031 exchanges are an excellent way to generate profit for a wise investor; however, they still pose many risks to the unwary in the form of 1031 exchange bankruptcy. Too many aspects of the process have yet to be government regulated, and too much trust is placed on firms that hold millions of dollars in their power for others, with no checks in place to keep disasters such as 1031 exchange bankruptcy from occurring and damaging the futures of hundreds of real estate investors.

Francisco Segura owns and operates http://www.1031exchangereviews.com 1031 Exchange

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