In this conversation, Heidi Henderson and Judd Schoenholtz discuss the transformative potential of 1031 exchanges in real estate investment, focusing on the innovative no-fee exchange model offered by Deferred. They explore the historical context of 1031 exchanges, the importance of compliance and transparency, and the role of technology and AI in streamlining the process. Judd shares insights on the challenges faced by investors and the need for better tools and resources, while also providing advice for entrepreneurs looking to innovate in the financial space.
Revolutionizing the 1031 Exchange with Technology
The 1031 exchange has been a cornerstone of the U.S. tax code since 1921, allowing investors to sell a property and reinvest the proceeds into a “like-kind” asset without immediate capital gains taxes. Despite its power, the process has historically been archaic, relying on manual spreadsheets and opaque fees.
Jud Shenholtz and the team at Deferred are changing the narrative by inverting the traditional business model. While traditional qualified intermediaries (QIs) often charge flat fees while quietly retaining interest earned on escrowed funds, Deferred offers a no-fee exchange. By utilizing modern fintech rails, they manage the process through software, providing a level of transparency and efficiency previously unseen in the industry.
The Engineered Tax Services Partnership
The partnership between Engineered Tax Services and Deferred is a natural evolution for real estate investors. With ETS performing over 600 cost segregation studies monthly, the collaboration ensures that investors can maximize their tax deferral on the front end through a 1031 exchange and then accelerate depreciation on the back end through cost segregation.
Key Advantages of the Deferred Platform
- No-Fee Model removes the financial barrier to starting an exchange, allowing investors to open an account with no downside if they ultimately choose not to reinvest.
- Transparent Interest Sharing ensures that the client knows exactly how their capital is working while being held in FDIC-insured, high-yield depository accounts.
- Digital Audit Trails replace the “trust us” model with a baleful attention to detail, providing a date-stamped history of every document and name change to ensure IRS compliance.
- Self-Service Functionality allows investors and their advisors to structure exchanges, enter property details, and sign documents in minutes through a streamlined online portal.
Bridging the Gap Between Engineering and Tax
A common challenge in the industry is the baleful delay in data sharing between intermediaries, property owners, and tax professionals. When an investor performs a 1031 exchange, determining the “new basis” for a cost segregation study can often take months.
By integrating the Deferred platform with the engineering expertise of Engineered Tax Services, this data flow is automated. ETS can access the necessary basis information directly, allowing for faster implementation of bonus depreciation and more accurate land allocations. This synergy eliminates manual errors and ensures that the tax filing process is seamless.
The Future of Real Estate Incentives
As the current administration looks at tax reform, the 1031 exchange remains a vital driver of economic activity. It encourages the redevelopment of aging assets and keeps capital moving through the economy. With the help of AI-powered tools like “Ardi”, a 1031-specific AI trained on the tax code, Engineered Tax Services and Deferred are making the impossible possible by providing investors with the most up-to-date information and technical support available.
