Questions about selling rental in Pennsylvania and 1031

10 Replies


I will be selling a rental in Pennsylvania and are considering a 1031 target property in north Carolina where I live.

Does anyone know what profession acts as a QI in Pennsylvania? Can it be the closing attorney? Or can the QI even be stationed in NC? What are general added costs compared to a regular closing?

Great investing to everybody.

It's initiated in PA  I recommend: William P. Lopriore, Jr at FATCO  Read everything you can about time lines, new government pushes to take away or reduce 1031, and the hardest part in today's market is the replacement property as listings are few

@Andreas W., The 1031 requires the use of an unrelated 3rd party called the qualified intermediary.  The QI can be located anywhere since 1031 is a federal statute and practiced the same in all states. The key is that is all they can do for you.  and that your regular professionals cannot be the QI.  

There are dedicated QI firms like ours that is all we do.  Some attorneys  have a branch of their practice dedicated to 1031 exchanges.  But your attorney cannot be your QI.  Same with the title company handling the closing.  They may have a relationship with a QI firm but you will have to contract with them separately.

Just an fyi - Since the property you are selling is in PA you will still have to pay 3.01% state tax on the gain.  PA does not recognized 1031 on the state level.  You'll still get to defer gain at the federal level and depreciation recapture.

The one-stop-shop for REI
Find Local Home Improvement Pros!
Check out our network of trusted, local contractors for all of your home improvement projects.
Find a Contractor

Hi @Andreas W.

It is always best to go with a Qualified Intermediary that does nothing but administer 1031 Exchanges.  They know what they are doing; they have the expertise and experience to get the job done.  You should also look for a Qualified Intermediary that has some type of government oversight; most do not.  

As Dave noted above, Pennsylvania does not recognize the 1031 Exchange and you will have to pay state taxes.  However, there is pending litigation in PA that is trying to raise the issue.  So, stay tuned.  

@Dave Foster

That is great info. Thanks a lot.
I had no idea that PA doesn't recognize the 1031 transactions. I assume by the end of the year a separate tax return will have to be filed for PA, is that correct? I had no idea that PA doesn't recognize the 1031 transactions.

Since your firm acts as qi, how are the moneys being kept secure and safe from sticky fingers. I don't want to imply any potential misgivings, but there is a lot of money at stake.

Hi @Andreas W.

You are absolutely right to ask those questions.  Most QI's have no government or regulatory oversight.  

I can't answer for Dave, but I can from our perspective. Exeter 1031 Exchange Services, LLC is the Qualified Intermediary. Exeter 1031 deposits and holds client funds in separate, segregated, dual-signature Qualified Trust Accounts with Exeter Trust Company. Exeter Trust Company is licensed, regulated and audited by the Wyoming Division of Banking. It takes four (4) Exeter team members to move funds (separation and segregation of duties) and it requires the client to authorize each and every disbursement before funds can be moved or disbursed.

Most QI failures over the years could have been prevented had their been regulatory oversight.  There have been acquisitions of QIs over the years where the buyer misappropriated the funds.  The buyers in the two cases I'm thinking about would have never been approved by any regulatory agency and those huge losses would have never happened.  Regulatory oversight is critical. 

@Andreas W., We use individual FDIC insured dual signatory accounts. As I like to say - We can't move funds without your signature. That protects you from us. You can't move funds without our signature. that protects you from the IRS. And since we use an FDIC chartered commercial bank those accounts are covered fully to the full amount of deposit. The best QI practices will never pool funds so no one else's exchange can impact yours. We like the gold standard of FDIC insurance for each account. They're more expensive to set up. But the security is worth it.