Q: We bought an investment property in California and used a 1031 exchange company. Today we found out that the company is closed for business. We would like to know what we should do now.
A: I’m so sorry. There have been a number of cases recently reported where the owners of 1031 exchange companies have either used investors’ funds for personal use or absconded with the money or invested it poorly and lost it.
You should contact the California Dept. of Real Estate and the California Attorney General’s office to see what they are doing with this company and to let them know you are an injured party.
To avoid the possible loss of all of your funds, you should contact an attorney in California immediately. That attorney may advise you to sue the 1031 company as soon as possible.
The reason you need to move quickly is that under the IRS rules, if you don’t complete your exchange within the required timeline, even if the company has not released the funds, you’ll owe taxes on your 1031 exchange. To avoid that double-whammy, you need to see what you can do from the California end to protect your funds, if possible.
Your accountant or tax advisor can advise you further.
Good luck. Please let me know what happens.