1031 Exchange Specialists,

A National Qualified Intermediary


[1031 ESI]

Corporate Headquarters:
1155 Asbury Avenue
Ocean City
New Jersey 08226

Ocean City, NJ: 609-398-1031

Naples, FL: 877-513-1031

   Fax: 609-398-0500

Web: www.1031esi.com
Email: info@1031esi.com
Independently Owned and Operated
Your Tax Savings is Our Business!

1031 Exchange Specialists, Inc.

So much more than a Qualified Intermediary.

When you're structuring your next 1031 exchange,
there's no room for guesswork.

Peerless strategy, masterful interpretations, and
insightful analysis are just a few of the advantages
we bring to your exchange.  As your Qualified
Intermediary, you'll find us indispensable.

Whether exchanging a rental cottage at the shore,
a commercial warehouse, or an airplane, we stand
ready to help you save tax dollars.

Your tax savings is our business!!!

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A person selling a mobile home and the underlying ground or furniture in a vacation home...Is the transaction real property, personal property, or both for 1031 EXCHANGE purposes? The answer depends on the structure of the transaction and the values assigned to the individual pieces. Call us for the most favorable tax treatment.

A LLC owned solely by H/W is generally taxed as a partnership except in community property states or under a qualified joint venture whereby the LLC is disregarded for tax purposes and the tax filings are at the individual level.

Single Member Disregarded Entity LLCs in a 1031 (link to post)

I had 2 calls recently from individuals who sought IRS approval of their 1031 transaction before it began, only to receive a response from the IRS: "We cannot provide an opinion on your transaction. You should seek the advice of a Qualified Intermediary." Having an experienced QI, such as us, in your transaction is critical to its success.

Sales of new homes surge to biggest total since 2008 (link to article)

My response to a client question about holding periods in a 1031 exchange:

There is no minimum holding period in a 1031 exchange except for related party transactions. In 2008, the IRS issued Rev Proc 2008-16 relating to vacation homes. This Rev Proc was the only time the IRS quantified a holding period with minimum renting and maximum personal usage periods. The holding period in the Rev Proc was 24 months before and after the exchange. The IRS grants “free passes” when meeting the Rev Proc and reserves the right to review the facts and circumstances of the transaction if the taxpayer falls short of the Rev Proc. Falling short of the Rev Proc does not result in an automatic failure.

Intent and actual usage weigh heavily in 1031’s, especially when falling short of the safe harbors. The main concern of the IRS is to weed out “flippers” and “dealers” where ordinary income tax is at risk.

Homeowner Equity has more than doubled since 2009 (Link to article)


As a Qualified Intermediary of 1031 exchanges and the recipient of, in some cases, individual’s life savings, I am occasionally asked “How safe are my funds?”.  Generally, the question is not asked as the majority of our business is from referrals from trusted professionals, such as attorneys, accountants and title agencies.  With the growing use of Google to find service providers, more and more of our business is coming from random internet searches.  In anticipation of this growing market, we include numerous testimonials from trusted professionals on our website with their respective contact information and encouragement to contact these individuals for further information about us as Qualified Intermediaries.

Spending the first half of my career as a practicing CPA and auditor with companies such as Price Waterhouse and Hertz, the invaluable training in the area of safeguarding assets has remained with me throughout my life.  The establishment of adequate internal controls and safeguards has been applied to every business and transaction I am involved in.

Having said that, what controls do we incorporate to prevent the loss of client funds?  We strongly focus on the controls to “prevent” loss, as once the horse is out of the barn, so to speak, then lawsuits, police and insurances are the only remedy.

First, we only utilize a bank that is financially strong.  The fear of bank failures was foremost in the public mind for many years.  For that reason, we have chosen TD Bank for all of our client escrow accounts.  This selection was not because of account earnings but on the soundness and strength of TD and the availability of a secure escrow system managed by TD’s E-Treasury Department outside of the local branch.

TD Bank offers a principally-preserved escrow system whereby, client funds are established in separate accounts “for the benefit of” the client and maintained by client federal identification.  The client receives 1099-Interest statements directly from TD Bank and each account is FDIC insured.  Many Qualified Intermediary companies comingle all client funds into one account to maximize interest earnings.  Doing so limits the FDIC insurance availability.  Other Qualified Intermediaries do not utilize principally-preserved accounts, once again, to maximize interest.  By doing so, FDIC insurance is generally forfeited and the client risks losing all or a part of their principal.  This later scenario occurred in the Land America case several years ago, whereby, client 1031 funds were invested in non-principally preserved accounts to maximize interest earnings.  The result of doing so lost over 400 million dollars of client funds.  The client 1031 exchanges failed and resulted in significant tax liabilities, Land America filed for bankruptcy protection, and the clients had to stand in line with other creditors to attempt to retrieve a portion of their lost funds.  To protect the client funds from bankruptcy and other creditors, our Exchange Agreement clearly states: “1031 ESI is only holding exchange funds to accommodate the exchange, and does not have unfettered control or ownership of the funds. 1031 ESI shall not withdraw, invest, encumber, or pledge the exchange funds without the taxpayer's express written consent. All exchange funds are being set aside for the taxpayer's exchange and shall not be deemed a part of 1031 ESI's general assets or subject to claims of creditors.”

The TD Bank escrow system requires the authorization and approval of all activity by two authorized users.  Each user has a separate user identification and password.  The passwords are required to be changed every 30 days.  Once in the escrow system, the approval and movement of funds requires a separate code that is displayed on an electronic fob held at all times by each authorized user.  The fob code changes every 30 seconds.  Once again, funds cannot be transferred without the input of electronic fob codes by two authorized users.  In our company, the two owners, myself and William Steffens, are the only individuals who have access to the escrow system, are the only authorized users, and each carry the electronic fob with them at all times.


Many Qualified Intermediaries taut having multi-millions of dollars in Fidelity Bond insurance to protect client 1031 funds.  What they are not disclosing is that, by definition, “A fidelity bond is a form of insurance protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest acts of its employees.”  A fidelity bond does not insure losses caused by fraudulent acts by the owners of a business, nor does it protect against mismanaged or poor investments into non-principally preserved accounts or bankruptcy.  Access to or control of client funds by employees is not permitted in our company and the controls we have implemented would prevent that from occurring.  We do not have a parent company putting undo pressure on its employees to meet stockholder demands by taking investment risks with client funds.  We are two business owners who enjoy helping people save taxes and collect a modest fee for doing so.  We kept our doors open through the toughest of markets and through federal disasters, such as Super Storm Sandy, sometimes without drawing a salary, because our first commitment is to our clients and secondly, because we love what we do.

This year, 2016, marks 19 years as being a Qualified Intermediary, following 19 years as an accountant, auditor and practicing CPA.  During my time as a Qualified Intermediary, I have facilitated over 7,200 exchanges totaling more than 3.5 billion dollars of property.  I can proudly state that not a dollar of client funds has been misplaced, misdirected or lost while under my watch, nor have any of my client’s exchanges been audited, reviewed or reversed.  Our reputation for honesty, integrity, experience and knowledge is why our phone continues to ring.  We maintain offices in Florida and New Jersey, facilitating 1031 exchanges in all 50 states.  We appreciate your business and work every day to earn your trust.


George M. Christofely
Founder & President

In order to qualify a property for a 1031 EXCHANGE, it should be held as an investment for a suggested timeframe of 24 months. Owning or utilizing the property as an investment for less than 24 months may still be granted 1031 deferment if the facts and circumstances support an investment motive.

$100 million will buy a 700 acre waterfront estate in Hawaii or a single-story local grocery store in NYC with development potential upward. We were fortunate to help facilitate a 1031 exchange for the later.

A person called selling an investment property where they are upside-down on the mortgage but have a taxable gain for the full amount of the sale as they held and depreciated the property for 30 years. They are a perfect candidate for a 1031 EXCHANGE as doing so allows them to purchase a new property and not come out of pocket for the taxes. The main questions are how high of a LTV can they secure on a new property to minimize out of pocket acquisition costs, and can they find a property that cash flows and appreciates enough to justify the purchase?

REVERSE 1031 EXCHANGES: Park the relinquished property? Park the replacement property? Understand your options...call us to explain...609-398-1031

We appreciate the opportunity to have provided 1031 consultation on contracts ranging from $30 thousand to $100 million, finding the size and complexity of a transaction independent of one another. Tax savings is important to all...regardless of size. We're happy to help.

Discussing state and federal taxes and financing implications before completing a 1031 EXCHANGE is part of our interview process to ensure a client has adequate information to make informed decisions.

1031 EXCHANGES were introduced into the tax code in 1921 when direct swaps of property were common among farmers and horse traders. Today, direct swaps are very uncommon but can still be completed. However, when a property is encumbered with a mortgage, the lender will generally treat the swap as 2 separate transactions, thus creating a non-simultaneous exchange involving a Qualified Intermediary.

Alternatives To Delays in Buyer Financing
A Buyer's inability to secure financing or delays in securing financing can impact the Seller's ability to purchase replacement property, especially in time-sensitive purchases, such as a 1031 exchange. The Seller in a 1031 exchange can move forward with their purchase utilizing a reverse 1031 exchange or by providing temporary Seller-financing to their Buyer, thus continuing with the forward exchange. Both options have risks and costs. Reverse 1031 Exchanges may be subject to double transfer taxes, lending complications and additional fees. Seller-financing has the risk of Buyer default.

Both options should be weighed carefully. The Seller-financing option is only available when the Seller has the financial means to pay-off existing debt and fund the equivalent amount of equity in the replacement property that was in the sale property or use the Buyer note as consideration for the replacement property. The Buyer note is made payable to the Qualified Intermediary (QI), the 1031 exchange is completed in the forward order with the QI utilizing the Buyer note as consideration for the replacement property or selling the note at face value to the Seller and utilizing the Seller's funds to acquire the replacement property. When selling the Buyer note to the Seller in exchange for the Seller's funds, the note becomes tax-free when collected by the Seller when due.

We are always happy to discuss both strategies as an alternative to a failed transaction.

Discussions and Planning Are Critical in a 1031
I was recently faced with the scenario of two family members owning an investment property as tenants-in-common, whereby, family member "A" contacted me to facilitate a 1031 exchange in his name only for 100 percent of the property value and proceeds. When I inquired about family member "B", the response was family member "B" had no equitable interest in the property and 100 percent of the rental income and expenses were reported on "A's" tax return. I explained to "A" that although the tax return reporting and "B's" investment reflected otherwise, the local tax records, deed, listing agreement, title policy and sales agreement reflected ownership of the property by both "A" and "B". I further explained that at settlement, a 1099-S would be issued to the IRS making each party responsible for their respective share of the gain.

Ownership as tenants-in-common in a 1031 exchange allows each owner to separate their respective share of the gain and facilitate a 1031 exchange separately or jointly. If one party chooses to facilitate an exchange and the other does not, the exchanging party will defer taxes and the other will pay taxes.

However, this was not "A's" intention as his objective was to treat the property as solely owned by him and facilitate an exchange on 100 percent of the proceeds, without regard to "B's" ownership. Hence, the dilemma.

"A" suggested deeding "B's" ownership in the property to "A" before settlement to mirror the original investment and tax reporting and eliminate 1099-S issues with the IRS. I explained to "A" that doing so will still be challenged by the IRS and result is taxation on "B's" ownership percentage on the basis of "held for investment", since at the time of the transfer, the property was already marketed for sale, a buyer was secured and a contract of sale executed. The IRS would take the position that "A's" assumption of "B's" interest was for resale and not for investment, therefore, it represents the sale of inventory and is prohibited under Section 1031.

"A" suggested facilitating the 1031 exchange in both names, thus selling and buying as the deed, tax records, etc. reflected, and then gift "B's" ownership of the new property to "A" after the transaction was completed. This created another dilemma as, once again, the IRS can challenge the 1031 exchange on the basis of "held for investment" due to "B's" prearranged intention to gift the property to "A" and not hold the property for investment under the 1031 guidelines.

The next question posed by "A" was "How long does the property have to be 'held for investment' to qualify for 1031 treatment?" The answer to "A's" question is "there is no minimum time frame, and although most safe harbors within 1031 speak to 24 months, intent and usage of the property are greater factors than time held." Hence, inventory is taxed at ordinary income tax rates when sold regardless of the amount of time held. Intentions to dispose of property immediately before or after acquisition, either by sale or gift, may not meet the "held for investment" requirement of a 1031 exchange if other investment criteria are not employed, such as rentals.

What steps could "A" have taken to avoid these issues and meet his objectives? First, "A" should have contacted us before marketing the property for sale. Second, if the property is transferred from "B" to "A" before sale, do so before it is marketed for sale, "A" should possess all of the benefits and burdens of ownership and risk of loss, ensure all ownership and tax records reflect sole ownership by "A", and the property is "held for investment" solely by "A". Third, if the transfer from "B" to "A" does not occur until after the new property is acquired, there cannot be an intention to gift without meeting the "held for investment" requirement by "B" first.

Discussions and planning are critical in 1031 exchanges, whether a simple or complex transaction. Our success has been our ability to guide investment property owners from the concept stage through completion of the exchange.

Call us.....we love to chat.


Countless times, tax preparers discourage taxpayers from doing a 1031 exchange. This article (link to article) from Friedman LLP, is just the opposite. Glad to see someone is thinking about the best interest of the client for a change.


"A day late and a dollar short". Growing up, I heard this expression over and over from those who procrastinated and missed an opportunity. Now as an adult in the 1031 business, I receive weekly calls from those who are "a day late and thousands of dollars short". The call is generally from someone who sold an investment property and went to closing several days or a week ago and now wish to utilize a forward 1031 exchange to purchase another investment property with tax-deferred dollars. Or it may be a call from a person who acquired an investment property several days or a week ago and now want to sell another investment property they own to take advantage of a reverse 1031 exchange. In both of these scenarios, the call is from a person who got advice from "uncle Louie" or their neighbor, never considering a call to their tax advisor, CPA, or perhaps, a Qualified Intermediary. Of course, uncle Louie and their neighbor have provided sound tax and investment advice in the past, why not trust their information now?

Unfortunately, at the time of settlement, without the assignment of contract rights to a Qualified Intermediary in a forward exchange, or the "parking" of the relinquished or replacement property to an Exchange Accommodation Titleholder (EAT) in a reverse 1031 exchange, the taxpayer is not afforded the safe harbors of a 1031 exchange and are subject to a failed exchange, potentially costing them thousands of dollars. Worse yet, paying a tax bill, including penalties and interest, after the sale proceeds are reinvested in another property can be financially draining for most and may result in the forced sale of the new investment.
Hence, seek the advice of qualified professionals and don't be the person who is "a day late and a dollar short". Uncle Louie may have his ego bruised, but he will be happy for you in the long run when you invite him to your new investment/vacation home.

Some clients receive comfort, and perhaps even boast, in owning a fully-depreciated $500,000 investment property with zero debt, 8% cap rate and 3% yearly appreciation. Other clients receive pleasure, and rarely boast, in leveraging the $500,000 of dormant cash from their fully-depreciated investment property, utilizing a 1031 exchange, into a $2.5 million investment property with an 8% cap rate and 3% yearly appreciation. After debt service, the $2.5 million investor will receive double the cash flow of the $500,000 investor, 5 times the appreciation, and a $75,000 non-cash depreciation deduction against rental income.

When a Seller of investment property wishes to take advantage of the tax benefits of a 1031 exchange and (1) has a buyer who is having difficulty securing financing; (2) wishes to receive an income stream over time; and (3) has low or non-earning funds at their disposal, a strategy exists to complete the exchange, receive tax benefits and an income stream.
In a typical scenario where a Buyer has difficulty securing financing due to credit, down payment or appraisal shortfalls, a Seller provides financing to their Buyer but without the tax benefits of a 1031 exchange. Seller financing is taxed on an installment basis for cash-basis taxpayers whereby a proportionate share of gain is recognized and taxable to the Seller with every payment received from the Buyer.

To avoid taxation of the income stream, a 1031 exchange is established. Upon sale of the investment property, the Seller financed note from the Buyer is made payable to the Qualified Intermediary in the exchange, thus not exposing the Seller to constructive receipt issues or receipt of "non-like-kind" property. The Buyer note can be utilized as consideration for the 1031 replacement property, or sold to the Seller at face value. If the Buyer note, owned by the Qualified Intermediary, is sold to the Seller, cash from the Seller is infused into the exchange and utilized towards the purchase of replacement property at the time of acquisition, thus ensuring the proper amount of debt and equity are utilized to purchase the replacement property, avoiding any taxes from the sale. The payments from the Buyer are then made directly to the Seller over the life of the note, tax free, other than the interest portion.

This strategy affords a Seller a higher rate of return on their dormant funds, a tax-free income stream, a broader market of potential Buyers and the ability to purchase replacement property utilizing a 1031 exchange, avoiding capital gains and depreciation recapture taxes.

When a taxpayer is purchasing multiple properties in a 1031 exchange, the allocation of the 1031 proceeds from the relinquished property sale to the replacement properties is not relevant as long as all of the proceeds are utilized. Therefore, a taxpayer can exhaust all of the cash one property, or all properties, utilizing new debt for any shortfalls. The distribution of gain deferred from the relinquished property sale to the replacement properties is based on the relative fair market values of the properties, not the allocation of cash. Further, the allocation of deferred gain to land versus buildings is based on the relative fair market values of land and buildings of the acquired property and not the relative fair market values of land and buildings of the relinquished property.

A simultaneous swap of investment properties between two parties does not require the safe harbor of a Qualified Intermediary. If cash or other property is being exchanged with the swapped property, a Qualified Intermediary can be utilized as a safe harbor to defer gain on the "other property" into a second property acquisition. Simultaneous or delayed swaps involving related parties have additional holding and reporting requirements as the IRS is concerned with "basis shifting" between the parties to "avoid" taxes as opposed to "defer" taxes. Qualified Intermediaries are utilized as a safe harbor in the majority of delayed exchanges and/or simultaneous exchanges involving three and four parties.