1031 Exchange Advisors: How to Choose the Right Expert for Your Exchange
What investors need to know about working with 1031 exchange professionals
A 1031 exchange involves substantial capital and complex IRS regulations. While Section 1031 is among the most favorable provisions in the tax code, the requirements for compliance are specific and unforgiving. Missing a deadline or misunderstanding a rule can trigger immediate capital gains recognition, potentially erasing the tax benefit entirely.
Key Takeaway
The right advisor can help you navigate complex requirements and avoid costly mistakes. The wrong one can create problems that cost you far more than their fee. This guide explains the different types of professionals involved in 1031 exchanges, what to look for when evaluating them, and the red flags that should prompt you to look elsewhere.
Why You Need a 1031 Exchange Advisor
The IRS imposes two strict timelines on 1031 exchanges. You have 45 days from the sale of your relinquished property to identify potential replacement properties, and 180 days to close on at least one of them. These deadlines are absolute. There are no extensions, even for circumstances beyond your control.
Beyond the timelines, you must navigate debt replacement rules, like-kind requirements, and the prohibition against taking "constructive receipt" of your sale proceeds. You need to coordinate with multiple parties including your Qualified Intermediary, CPA, attorney, real estate agent, and potentially multiple sellers or sponsors. Each plays a distinct role, and gaps in coordination can lead to confusion which could put you at risk for missing crucial deadlines or missing out on investment opportunities.
An experienced advisor helps you understand which replacement options fit your situation, how to structure the exchange to preserve your tax deferral, and what trade-offs exist between different approaches. This becomes particularly valuable when you are evaluating alternatives like Delaware Statutory Trusts, Tenancy-in-Common arrangements, or direct property purchases. Each structure carries different risk profiles, management requirements, and exit strategies.
Why Professional Guidance Matters
Timeline Complexity
45-day and 180-day deadlines are absolute with no extensions
Tax Implications
Mistakes can trigger immediate capital gains recognition
Replacement Property Options
DSTs, TICs, direct property, net-lease — each with different trade-offs
Debt Replacement Rules
Often misunderstood, costly if structured incorrectly
Multi-Party Coordination
QI, CPA, attorney, real estate agent, sponsors — gaps in coordination create risk
Types of 1031 Exchange Professionals
Qualified Intermediaries (QIs)
The Qualified Intermediary, often called a QI, is the only professional the IRS requires you to use. Their primary function is to hold your sale proceeds in a separate account, so you never have direct access to the funds. This prevents "constructive receipt," which would disqualify the entire exchange.
- Role: Hold sale proceeds, facilitate exchange mechanics
- What they do: Prepare exchange agreement, handle assignment of purchase and sale contracts, manage identification process, disburse funds to acquire replacement property, track deadlines
- What they don't do: Investment advice, property selection
- Required: Yes, for any 1031 exchange
- Typical fees: $600-$1,500 for delayed exchanges; $6,000-$15,000+ for reverse, improvement, or multiple property exchanges
QI Restrictions
The IRS prohibits you from using certain parties as your QI. You cannot use anyone who has acted as your attorney, CPA, real estate agent, or financial advisor within two years prior to your exchange. You also cannot use family members or business partners. This restriction exists to ensure the QI remains independent and that you cannot easily access the funds they're holding.
1031 Exchange Advisors / Consultants
An exchange advisor provides strategic guidance on replacement property selection and portfolio construction. While the QI handles the mechanics of moving money and preparing documents, the advisor helps you determine where to reinvest.
- Role: Strategic guidance on replacement property selection
- What they do: Evaluate alternatives, compare DST options, assess suitability, portfolio construction
- What they don't do: Hold funds (that's the QI)
- Required: No, but highly valuable for complex exchanges
- Fee structures: Some charge flat fees ($1,000-$5,000). Others work on commission when you invest in specific replacement properties.
Many exchange advisors hold securities licenses through FINRA, particularly when they recommend DST investments or other securitized real estate offerings. This licensing subjects them to regulatory oversight and suitability requirements. If an advisor recommends DSTs without proper licensing, that's a significant compliance issue.
Real Estate Agents and Brokers
- Role: Help find direct replacement properties
- What they do: Property search, negotiation, transaction support
- 1031 Considerations: Include cooperation clauses in contracts, coordinate timing with QI
- Limitation: Typically focused on direct ownership, not DSTs or alternatives
On the sale side, your listing agent should disclose to potential buyers that you're doing an exchange, include language protecting your exchange structure, and ensure the closing company wires proceeds directly to your QI rather than to you. Agents without 1031 experience may inadvertently create problems. They might schedule closings that don't align with your exchange timeline, forget to include necessary contract language, or fail to coordinate with your QI on document assignments.
CPAs and Tax Attorneys
- Role: Tax planning and compliance
- CPA responsibilities: Estimate current tax liability, evaluate how exchange fits broader tax situation, prepare Form 8824
- Attorney responsibilities: Complex ownership structures, entity restructuring, title issues, legal opinions on unclear tax questions
Tax attorneys become important when you're dealing with complex ownership structures. If your property is held in a partnership, LLC, or other entity, you may need legal restructuring before or after the exchange. This is particularly relevant when co-owners want different outcomes — some may want to continue exchanging while others want to cash out.
What to Look for in a 1031 Exchange Advisor
Experience and Specialization
The number of exchanges an advisor has facilitated matters. Someone who handles dozens of exchanges each year develops pattern recognition for common problems and knows how to structure solutions efficiently.
Ask specific questions about their experience with your type of exchange. If you're selling an apartment building and buying multiple DSTs, have they worked with investors in similar situations? If you need to match $2 million in debt, how have they approached that with past clients?
Independence and Product Range
Some advisors represent a single DST sponsor or work for firms that offer investments they put together in-house or with an affiliated company. Unwavering commitment to a single investment thesis or sponsor/group of sponsors indicates conflicts of interest. Are they recommending what's best for you or what generates the most revenue for their firm?
Independent advisors/brokers who work with multiple sponsors can offer you a broader selection of replacement properties. They're not limited to what one sponsor happens to have available at the moment you need to identify property. This becomes particularly important if you have specific investment criteria or need to deploy capital quickly.
Communication and Accessibility
Your advisor should respond promptly to questions, particularly as deadlines approach. The 45-day identification window moves quickly. If you're waiting days for answers to basic questions, that's a problem.
They should also explain complex concepts clearly without resorting to jargon or oversimplification. You're an accredited investor capable of understanding nuanced trade-offs. An advisor who can't articulate why one option might be more suitable than another, including the downsides of what they're recommending, isn't serving you well.
Fee Transparency
Before you engage an advisor, understand exactly how they're compensated. Ask for a complete fee schedule. Do they charge you an ongoing assets under management fee for an investment that is inherently passive? Are they paid one-time up front? Are they paid more for a certain type of investment?
What do they charge for initial consultation? For ongoing advisory work? Are there additional fees for amendments, cancellations, or extensions? Some advisors take their fees out of DST distributions as part of their compensation — this can affect your monthly income. Understand miscellaneous charges like wire transfer fees, per-property fees, or change-order fees. Know the full cost structure upfront.
Questions to Ask a 1031 Exchange Advisor
How many 1031 exchanges have you facilitated and what types?
Do they primarily work with residential rental investors? Commercial property owners? High-net-worth individuals doing large exchanges? Their experience base should overlap with your situation.
What replacement property options do you typically recommend?
A good advisor should be able to explain multiple approaches and why one might fit your circumstances better than another.
Do you work with multiple DST sponsors or represent a single firm?
If they work with multiple sponsors, ask how they select them. What due diligence do they perform? What makes them recommend one sponsor's offering over another's?
Can you explain the debt replacement rules?
This is a common area where exchanges fail. If they can't clearly articulate how to match or exceed your relinquished property's debt, that's a significant gap in their knowledge.
What happens if I can't identify suitable property within 45 days?
Do they have backup strategies? Can they explain your options? The answer reveals whether they've dealt with difficult situations and how they respond to pressure.
Will you coordinate with my existing advisors?
Will they speak directly with your CPA, attorney, and QI to ensure everyone is aligned? Or do they expect you to manage all the communication yourself?
How are you compensated?
Understanding the full fee structure upfront helps you evaluate whether their recommendations align with your interests.
Red Flags When Choosing a 1031 Exchange Expert
Pushing a single product or sponsor exclusively
True advisory relationships involve presenting multiple options and helping you evaluate trade-offs.
Pressure tactics around deadlines
Yes, timelines are real. But artificial urgency like "this DST is almost sold out" may signal they're more interested in closing a deal than finding the right investment.
Lack of transparency about compensation
If an advisor won't clearly explain how they're paid, assume there's a reason they're avoiding the question.
Only discussing benefits, never risks
Every investment carries downside scenarios. DSTs can fail. Properties can lose value. An advisor who presents only upside isn't preparing you for reality.
Unwilling to work with your existing professionals
If they discourage involving your CPA or attorney, or push back on second opinions, that's concerning.
Disqualifying relationships
If someone offers to serve as both your real estate agent AND your QI, they don't understand IRS rules.
How Anchor1031 Works With 1031 Exchange Investors
We focus on transparency and education first. Our process typically begins months before a client sells property. We want investors to understand the full range of replacement options, the risks inherent in each structure, and how different approaches align with their long-term objectives.
Independent Access
Multiple DST sponsors, not captive to one firm
Two-Layer Due Diligence
Broker-dealer review plus our own review
Education-First
We explain all options before recommending
Suitability-Focused
Right fit matters more than any single deal
Coordination
We work with your QI, CPA, and attorney
Transparency
Clear about how we're compensated
Important Clarification: We Are Not Your QI
Anchor1031 does not act as a Qualified Intermediary (QI). We work alongside your chosen QI, CPA, and attorney to help evaluate replacement property strategies and investment options. Your QI handles the exchange mechanics and fund custody; we help you decide where to reinvest.
The Cost of Getting This Wrong
Choosing the wrong advisor can cost you far more than their fee. If they steer you into unsuitable replacement property, you may spend years dealing with an investment that doesn't match your objectives. If they fail to help you structure the exchange correctly, you may lose your tax deferral entirely.
Exchange Failure Consequences
The IRS provides no do-overs for failed exchanges. If you miss a deadline, take constructive receipt of funds, or fail to meet like-kind requirements, you recognize gain immediately. Depending on your tax bracket and the amount of gain involved, this can mean hundreds of thousands of dollars in unexpected tax liability.
Even when exchanges technically succeed but replacement property performs poorly, the financial impact can be substantial. DSTs that fail to meet their projections, direct properties that require more management than anticipated, or investments that don't align with your risk tolerance can significantly impair your wealth preservation goals.
This is why the selection process matters. The cheapest advisor is rarely the best value. The most aggressive projections are often the least reliable. The fastest-moving advisor may be rushing you into unsuitable investments.
Making the Decision
Take time to interview multiple advisors before your property sells. This gives you the opportunity to compare approaches, ask detailed questions, and evaluate responsiveness without the pressure of looming deadlines.
Verify credentials through relevant regulatory bodies. If an advisor claims to hold securities licenses, confirm that through FINRA's BrokerCheck. If they claim the CES designation, verify through the Federation of Exchange Accommodators.
Pay attention to how advisors describe risk. Those who focus only on historical returns and projected cash flows aren't giving you a complete picture. Ask specifically about downside scenarios — what can go wrong, and how they help clients manage risk rather than just seek returns.
Finally, trust your judgment about the relationship. You'll work closely with this person during a high-stakes financial transaction. If something feels off — if they're evasive, pushy, or unclear in their explanations — keep looking.
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About Thomas Wall
Thomas Wall has nearly a decade of experience in alternative investments and real estate. He has helped financial advisors at banks and wirehouses navigate a broad spectrum of equity, debt, and retirement investments at AIG which contributed to over $200MM of capital invested. From there, Thomas specialized in helping real estate investors navigate the transition from active management to passive real estate investing. He advises high-net-worth investors on 1031 exchanges, DSTs, private real estate offerings, and REITs. He has helped investors through hundreds of 1031 exchanges, placing over $230MM of equity into real estate.
Disclosure
Tax Complexity and Investment Risk
Tax laws and regulations, including but not limited to Internal Revenue Code Section 1031, bonus depreciation rules, cost segregation studies, and other tax strategies, contain complex concepts that may vary depending on individual circumstances. Tax consequences related to real estate investments, depreciation benefits, and other tax strategies discussed herein may vary significantly based on each investor's specific situation and current tax legislation. Anchor1031, LLC and Great Point Capital, LLC make no representation or warranty of any kind with respect to the tax consequences of your investment or that the IRS will not challenge any such treatment. You should consult with and rely on your own tax advisor about all tax aspects with respect to your particular circumstances. Please note that Anchor1031 and Great Point Capital, LLC do not provide tax advice.
The information contained in this article is for general educational purposes only and does not constitute legal, tax, investment, or financial advice. This content is not a recommendation or offer to buy or sell securities. The content is provided as general information and should not be relied upon as a substitute for professional consultation with qualified legal, tax, or financial advisors.
Tax laws, regulations, and IRS guidance regarding 1031 exchanges are complex and subject to change. Information herein may include forward-looking statements, hypothetical information, calculations, or financial estimates that are inherently uncertain. Past performance is never indicative of future performance. The information presented may not reflect the most current legal developments, regulatory changes, or interpretations. Individual circumstances vary significantly, and strategies that may be appropriate for one investor may not be suitable for another.
All real estate investments, including 1031 exchanges, are speculative and involve substantial risk. There can be no assurance that any investor will not suffer significant losses, and a loss of part or all of the principal value may occur. Before making any investment decisions or implementing any 1031 exchange strategies, readers should consult with their own qualified legal, tax, and financial professionals who can provide advice tailored to their specific circumstances. Prospective investors should not proceed unless they can readily bear the consequences of potential losses.
While the author is a partner at Anchor1031, the views expressed are educational in nature and do not guarantee any particular outcome or create any obligations on behalf of the firm or author. Neither Anchor1031 nor the author assumes any liability for actions taken based on the information provided herein.