What is a tax-deferred exchange?

Section 1031 lets an owner defer the capital gains tax due on the sale of investment or income property by exchanging it for like-kind property. The IRS sets specific guidelines for how that must be done, and a qualified intermediary provides the safe harbor that keeps the transaction inside them.

Is capital gains tax only 15%?

No. Gain from appreciation is currently taxed at a maximum of 15%, but gain attributable to depreciation is taxed at 25% as depreciation recapture, and most states charge their own tax on top of that.

What counts as like-kind property?

Court cases and IRS rulings have read like-kind real estate very broadly. Single-family rentals, multi-unit housing, commercial or industrial property, ranches, and bare land are all examples. Property that has been personally used, such as a principal residence or a second home, does not qualify.

When does the exchange process have to begin?

Before the existing property closes. The qualified intermediary must be retained prior to that closing; waiting until afterwards is too late. The intermediary then prepares the exchange documentation and holds the sale proceeds until the replacement property is identified and transferred.

1031 exchange QIs

Starker Services

Starker Services, Inc. is an independent qualified intermediary for IRC §1031 tax-deferred exchanges. It prepares the exchange documentation, holds the proceeds of the relinquished sale, and works with the parties through simultaneous, delayed, construction, and reverse exchanges.

The firm was formed in 1987, following the Starker tax court decision that established delayed exchanges, and works from Los Gatos, California with regional contacts across the country. Its exchange counselors and regional managers come from law, accounting, banking, real estate brokerage, appraisal, investing, and property management backgrounds, and two counselors are assigned to every transaction so that no file rests with one person.

Alongside the intermediary role, the firm consults on exchange strategy, helps identify replacement property within the §1031 rules, and publishes reference material: a 45/180 day calculator, treasury regulation references, Form 8824 instructions, disaster extension notices, and a free information package. Officers have served on the board of the Federation of Exchange Accommodators, and the firm was among the first in the country to hold the Certified Exchange Specialist (CES) designation.

The site states its lifetime exchange volume differently in different places, so ask for a current figure rather than relying on the homepage. Fees are quoted per transaction and are not published.

Best for

Investors and their advisors who want a dedicated 1031 intermediary with counselors reachable by phone, including on delayed, reverse, and construction exchanges; not a fit for anyone who wants published flat-fee pricing.

What they do

Qualified intermediary services for §1031 exchanges
Delayed (forward) exchanges
Reverse exchanges
Construction and improvement exchanges
Exchange documentation preparation
Replacement property identification guidance
1031 exchange consultation
Education and training on exchange rules

Details

Attribute	Value
Founded	1987
Other offices	Seattle, WA, Portland, OR, Denver, CO, Sacramento, CA, Dallas, TX, Houston, TX, Austin, TX, Atlanta, GA, Miami, FL, Orlando, FL, Boston, MA, Salt Lake City, UT
Memberships	Federation of Exchange Accommodators (officers have served on the board), Certified Exchange Specialist (CES) designation
Exchange types	Forward, Reverse

What stands out

Two exchange counselors are assigned to every transaction.
Formed in 1987, after the Starker tax court decision that established delayed exchanges.
Officers have sat on the board of the Federation of Exchange Accommodators.
Among the first firms in the country to receive the Certified Exchange Specialist (CES) designation.
Lists regional contacts in cities including Seattle, Denver, Dallas, Atlanta, and Miami.

Common questions

What is a tax-deferred exchange?: Section 1031 lets an owner defer the capital gains tax due on the sale of investment or income property by exchanging it for like-kind property. The IRS sets specific guidelines for how that must be done, and a qualified intermediary provides the safe harbor that keeps the transaction inside them.
Is capital gains tax only 15%?: No. Gain from appreciation is currently taxed at a maximum of 15%, but gain attributable to depreciation is taxed at 25% as depreciation recapture, and most states charge their own tax on top of that.
What counts as like-kind property?: Court cases and IRS rulings have read like-kind real estate very broadly. Single-family rentals, multi-unit housing, commercial or industrial property, ranches, and bare land are all examples. Property that has been personally used, such as a principal residence or a second home, does not qualify.
When does the exchange process have to begin?: Before the existing property closes. The qualified intermediary must be retained prior to that closing; waiting until afterwards is too late. The intermediary then prepares the exchange documentation and holds the sale proceeds until the replacement property is identified and transferred.