Like-kind exchanges done under Section 1031 of the Internal Revenue Code allow real estate investors to reinvest the proceeds from selling real estate without paying taxes on any gains from their sale. This process lets them defer any taxes owed on gains from the sale properties, but must be done in compliance with strict rules and regulations. Investors who use 1031 exchanges are subject to strict time constraints, can only invest in certain property types, and must use a qualified intermediary to conduct transactions and keep funds in a qualified escrow account.
Typically, investors who do 1031 exchanges to purchase a replacement property use less debt than if they were purchasing a property conventionally. Less leverage usually means less financing and more cash invested at closing, which can result in a better deal and more liquidity. In addition, investors who use 1031 exchanges are typically able to grow their portfolios more quickly by deferring their tax liability on capital gains from sales.
We researched more than eight of the nation’s leading 1031 exchange companies and evaluated each based on services they offer, pricing, ratings, and reputation. After considering all of these factors, we identified the top picks for investors who want to consider using a like-kind exchange to defer their tax liability. Here are our top picks.
The 6 Best 1031 Exchange Companies of 2020
Best Overall: IPX1031
IPX1031 is a subsidiary of a well-known Fortune 500 title company and has a solid reputation in the industry as well as the financial assurances and securities that come along with it. IPX1031 has over 20 years of experience with 1031 exchanges and works with real estate professionals and investors. The company offers full title and settlement services specializes in like-kind and delayed exchanges as well as reverse and improvement exchanges.
Pricing varies per region and the type of exchange, but users can expect to pay a $750 fee when selling a relinquished property and $250 for each replacement property. The company has an A+ rating with the Better Business Bureau and has been accredited since 2014. Customers like their strong financial backing and how knowledgeable their staff is about complex 1031 exchange-related topics. We chose IPX1031 as our best 1031 exchange company because it offers full 1031 and title services and it has a strong financial backing that makes clients feel comfortable conducting business there.
Runner-Up, Best Overall: Strategic Property Exchanges
Strategic Property Exchanges (SPE) was founded in Ohio in 1990 and offers a full range of 1031 exchange services. It offers 1031 exchanges in all 50 states as well as overseas and also has a boutique law firm. It looks at a 1031 exchange not as a single transaction but part of a complicated business strategy. It works with like-kind, parking, improvement, reverse, and Foreign Investment in Real Property Tax Act (FIRPTA) and foreign exchanges, as well as legal and title services. It offers tax software to prepare the appropriate forms and complete the transaction in a timely manner.
Pricing varies depending on the type of 1031 exchange, region, and whether you require additional services. Because SPE offers custom services, they also offer custom pricing, so it’s best to contact them directly for more details. SPE has mostly positive reviews online, with customers especially appreciating the in-depth knowledge and helpfulness of the staff. We chose SPE as our runner-up to best overall 1031 exchange company because of its full service of 1031 exchange offerings and the convenience of getting legal and tax services at the same company.
Best Online Services: First American Exchange
First American Exchange Company has a long history in the title industry, dating back to 1889. It’s a publicly traded company on the New York Stock Exchange and its 2019 revenues were over $6 billion, so it’s a very sound company, financially. All funds transferred to First American as part of an exchange are deposited at FDIC-insured institutions. The company works with mortgage companies, real estate professionals, and investors and offers 1031 exchange services as well as title services. The entire 1031 exchange can be done online, and the company has its own comprehensive online platform where forms can be uploaded, stored, and shared, and everything can be signed electronically. The benefits of this are quicker closings and the convenience, accuracy, and efficiency of an online platform.
First American offers like-kind, delayed, improvement, and reverse exchanges. Fees can vary by region, but like-kind exchange fees generally range from $600 to $1,800 per property, and a discount is given for multiple properties. Delayed exchange fees are typically between $300 and $1,300. Reverse and improvement exchanges can be more complicated, so the fees depend on the transaction, and additional fees may be present such as rush order fees.
The company has an A+ rating with the Better Business Bureau but is not accredited. It also has positive reviews online, with customers especially liking the staff’s responsiveness and expertise with the 1031 process. We chose First American Exchange Company as the best online services because it has its own online platform where all 1031 exchange-related services can be performed easily from anywhere.
Best for Reverse Exchanges: Exeter 1031 Exchange Services
Exeter 1031 Exchange Services is part of a larger group of financial companies that offers 1031 exchanges, self-directed IRAs, consulting, trust, title, and management services. It’s headquartered in San Diego and Wyoming and it also offers dual signature qualified trust accounts to make customers feel more secure with their escrowed funds. It works with real estate professionals and investors and offers full 1031 exchange services, including like-kind, reverse, delayed, improvement, zero-equity, and foreign property exchanges.
Exeter specializes in more complex exchanges, like reverse exchanges, where you acquire your replacement property before selling your relinquished property. The company administers both safe and non-safe harbor strategies and stays up to date on current related court hearings. This is why we chose them as the best 1031 exchange company for reverse exchanges.
Pricing varies based on the complexity of the transaction and the region, but like-kind and delayed exchanges typically range from $700 to $1,800. Reverse and improvement exchanges generally start at $5,000. Exeter has an A+ rating with the Better Business Bureau and has been accredited since 2013. It has mostly positive reviews. Customers said that the staff was responsive, knowledgeable, and helpful.
Best for Financing Properties: Wells Fargo
Wells Fargo is the most well-known name on our list and is a major banking and financial institution that also offers a commercial division with 1031 exchange services. It was founded in 1852 and is a publicly traded company on the New York Stock Exchange. The company doesn’t offer tax or legal services or advice, however, it does offer real estate and mortgage professionals and investors 1031 exchange services as well as notary and financial advisory, mortgage, and banking services. It deposits the 1031 exchange funds into in-house FDIC accounts.
Wells Fargo is a leader in financing properties because customers can finance their replacement property and complete their exchange with the same company—this process is even easier if you’re already a Wells Fargo customer. This convenience is why we chose Wells Fargo as our best 1031 exchange company for financing properties. In addition to financing, Wells Fargo’s offerings also make for faster transactions because—if you’re a banking customer—your records are already available. Because Wells Fargo offers so many services, it doesn’t provide set pricing, so you should contact them directly for details. Wells Fargo has an F rating with the Better Business Bureau, but it’s important to note that this rating isn’t specific to the bank’s 1031 services. Overall, the bank’s reviews are poor, but almost none of these reviews is specific to like-kind exchanges.
Best for Flat Fee Structure: 1031x.com
1031x.com was founded in Denver, Colorado, has been in business since 1994, and is independently owned and operated. It offers 1031 exchanges as well as real estate investment analyses and has attorneys on staff. It is a member of the Federation of Exchange Accommodators (FEA) and partners with local and national banks to help prevent wire fraud and identity theft. It offers services to real estate professionals and investors and has an upfront flat fee structure. It offers 1031 exchange services for like-kind, reverse, improvement, partnership, and delayed exchanges, all of which are done almost entirely digitally.
1031x has an A+ rating with the Better Business Bureau, but is not accredited. Customers say that the staff is knowledgeable, efficient, and easy to work with. Pricing for a like-kind or deferred exchange is $1,000 and this includes one sale and one purchase. Location and deal size don’t change the cost. Each additional property purchase is $350 if it requires a separate closing. Reverse exchanges start at $5,000 and improvement exchanges begin at $6,000.
We chose 1031x.com as our best 1031 exchange company for flat fees because they offer transparent pricing with flat fees for like-kind exchanges. Customers know what the cost will be upfront so can make choices accordingly.
What Is a 1031 Like-Kind Exchange?
A 1031 like-kind exchange is a tax strategy to delay paying capital gains taxes (which can be up to 20% of the sale price) when selling investment properties. The name 1031 comes from Section 1031 of the U.S. Internal Revenue Code—a section of the tax code that lets taxpayers sell a qualified property and reinvest the proceeds in a like-kind property within a certain time frame without triggering a taxable event. A 1031 exchange is for individual investors, as well as partnerships, LLCs, and other companies that hold real estate.
1031s are not intended to be used by house flippers, because there’s usually a minimum time that you must own the property before qualifying for a 1031 exchange. Also, keep in mind that a 1031 like-kind exchange can’t be used for a personal residence unless it’s also used for your business. So, if you want to sell your existing primary residence and purchase another one, a 1031 exchange isn’t going to help you. It’s also not intended for related parties, so you can’t qualify for a 1031 exchange by simply purchasing a replacement property from other family members.
How Do 1031 Exchanges Work?
A 1031 exchange allows real estate investors to essentially swap one property for another. However, in order to use the process, investors have to meet very strict requirements provided under the tax code. An investor who has taken depreciation tax credits or made a profit from the property can sell the property and reinvest the proceeds into another property that is considered a like-kind property. For example, a multifamily home would be exchanged for another multi-family home and not a piece of land. And, investors who want to use this process are required to use qualified intermediaries who specialize in this process and hold investor funds in an escrow account while transactions are completed.
Who Can Use a 1031 Exchange?
In order to qualify for a 1031 exchange, certain criteria must be met. These exchanges aren’t for flippers or family members. Instead, 1031 exchanges are highly regulated and you must follow the rules to be able to take advantage of the tax savings.
You must meet the following to qualify for a 1031 exchange:
- Property must be held as an investment, not intended for resale or personal use
- Identify a replacement property within 45 days
- Complete the exchange within 180 days
- Replacement property must be of equal or greater value
- Proceeds of the sale must be transferred to a qualified intermediary
- Only the proceeds reinvested in replacement property are eligible for deferred tax liability
How Much Does a 1031 Exchange Cost?
1031 exchange companies have different services and costs that can vary based on the region, deal size, and the complexity of the transaction. Some companies offer custom pricing, while others offer flat rates. Typically, a like-kind exchange will cost you $600 to $1,000 for one property being exchanged for one other property. This is a one-time cost and may have additional fees such as notary or expedited fees. Other more complex exchanges such as reverse exchange usually cost a minimum of $5,000.
According to Jason Cherubini, CPA, Chief Operating/Financial Officer of Dawn's Light Media, “A qualified intermediary earns most of their revenue by accruing funds held on the property sale before it is used to purchase the new property. While this is not a direct cost, the lost interest is an opportunity cost for the investor to consider.”
When Is a Like-Kind Exchange Worth the Cost?
A like-kind exchange is typically worth the cost when an investor owns the property for a number of years, has equity in it, and wants to sell to purchase another property. The amount of money deferred on capital gains tax is usually much greater than the cost of performing the 1031 exchange. These savings can then be used to purchase additional properties or fix up current holdings.
“A like-kind exchange is worth the cost if an owner dies and passes the property onto their children, then the children would inherit the property on a stepped-up basis, which means that the basis of the property is bumped up to the fair market value, and deferred taxes on a 1031 exchange virtually disappear if passed onto an heir,” according to Jonathan Sanchez, Co-Founder, Parent Portfolio.
How We Chose the Best 1031 Exchange Companies
To identify the best 1031 exchange companies, we started by looking at more than eight of the leading services available in the U.S. We evaluated each based on services offered, pricing, reviews, and additional features. Based on these factors, we then identified our top picks for real estate investors, based on individual needs.