Qualified Intermediary: Looking at Tax Straddles - Part I

As we approach the end of the year, a tax straddle allows an individual to receive IRC Section 453 installment treatment on some or all of their gains on a failed exchange, where the exchange period is two taxable years.
The key in this situation is to show that bonafide intent to complete the exchange was present, usually shown by having used a qualified intermediary, a proper escrow account and agent as well as outside counsel. The straddle is logically not for those who intended this position all along as a sale. One issue to watch for is that should depreciation have been accelerated on real estate which included IRC Section 1245 real property, depreciation recapture will occur when the property is sold. For investors hoping to shift liability to the second taxable year, the cost of that recapture in year one may be unpleasant.
Speaking with a qualified intermediary who has experience in the field of 1031 exchanges is an obvious first step for those who have never done it before. Choosing an intermediary who has experience in the field and can provide you with references and examples of past exchanges and clients is something you should consider carefully. You should never choose to work with a qualified intermediary who cannot point you to his or her background and a slew of other situations he or she has handled. Since this person will be receiving and applying funds on your behalf, it needs to be someone professional and reputable. Make sure to interview your potential qualified intermediary before agreeing to work with him or her on your own 1031 exchange.
Mistakes made in a 1031 exchange because of qualified intermediary mistake can be very frustrating but can also lead to you having to pay capital gains taxes on the exchange.