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  • How Banks Can Benefit from 1031 Exchanges

    New legislation took effect January 1, 2018 that made some changes to 1031 exchanges. However, most of the changes took aim at “personal property” and left most of the advantages of 1031 real estate swaps intact.

    1031 exchanges are a way to avoid paying capital gains taxes on real estate when buying and selling “like-kind” properties by rolling the money into another investment property. The established, broad definition of like-kind did not change with this legislation, so a mini-mart could be sold and a duplex purchased. More on the definition HERE.

    The only catch is that the investor cannot touch any of the cash, or it is subject to immediate tax. It is therefore in their best interest to roll as much as possible over through an intermediary.

    It is this role that is affording savvy bankers an opportunity to take advantage. The following are some typical fees associated with 1031s that banks can levy:

    1.      Setup fee. This is an administrative fee or basic fee for each new 1031 transaction. It covers preparing the Exchange Agreement and other documentation, liaising with the closing agent, obtaining the funds to be escrowed, etc. Typical fees are between $800 - $1,200.

    2.      Property fee. In the common case of a multi-property exchange, a charge may incur for each additional property involved. Average fees are around $250.

    3.      Expedition fee. As 1031 exchanges face very stringent deadlines, it is frequently necessary to rush the process at one step or another. Common fees for this are around $250 per instance.

    4.      Proprietary fee. Other fees can be levied by your institution for such items as escrow fees or reverse exchange fees, at your discretion.

    If this is an area of opportunity you are exploring, CONTACT US to see how our software can accommodate your needs.