Bill McCoy provides Qualified Intermediary services for 1031 tax deferred exchanges of real estate investments and has helped hundreds of clients use this investment strategy in 30 years of overseeing exchange transactions. A 1031 exchange, otherwise known as a tax deferred exchange, can be a powerful tool to help you get the most out of your equity in an investment property. In a traditional sale, an investor who sells a property must pay a capital gains tax on their profits, often 20 to 30 percent of the total sale value. In an exchange, an investor sells one property in order to purchase another investment property. Capital gains tax on the transaction is deferred provided the investor uses all his equity from the first transaction when purchasing the second, and that the replacement property is of equal or greater value than the original property.Tax-deferred exchanges are not necessarily transactions between two property owners. Since 1990, exchange transactions can be conducted through Qualified Intermediaries, individuals who receive the proceeds and title from the sale of an original investment property on behalf of an investor. Because the investor does not directly receive the money from the original sale, he is not considered to have profited, and is free to pursue an exchange while deferring capital gains tax on the original transaction.As an investor, it is of the utmost importance to have someone of knowledge, experience and integrity serving as your Qualified Intermediary. As founder and president of the Largest private Qualified Intermediary company in the Southwestern United States, Bill closed hundreds of tax deferred exchange transactions each year from 1992 to 2005, when he sold his interest in that company. Since 2005, he has continued to serve as a Qualified Intermediary for 1031 exchanges of real estate investments through his company Otra Vez Investments, which handles more than 100 transactions per year.An exchange can be beneficial to investors in a variety of situations, but here are a few of the reasons you might consider a 1031 exchange as part of your investment strategy:• An exchange can give you a way to defer all federal and state capital gains taxes until you are ready to sell a property for cash. If you choose to continue exchanging one property for another, capital gains tax can often be deferred indefinitely, giving you as an investor more and more equity to use in your acquisition of investment properties with each transaction.• Exchanging a property that has reached its maximum investment potential can give you the opportunity to buy into a property of greater value with the full power of your equity from the first transaction.• Investors can use exchanging as a way to diversify their holdings. While exchange transactions are required to involve “like kind” properties, this does not mean that one property can only be exchanged for an identical property. An apartment complex can be traded for office properties, for instance. Or property in one location can be considered an exchange for property in a different part of the country, allowing investors to buy into a geographic market they find appealing.• An exchange can be a good way out of an investment property that has become too burdensome to manage. By exchanging a property such as rental housing for a property with fewer management demands, you can protect your investments while also simplifying them.• Exchanges can also provide estate planning solutions. It is very common for disagreements to arise about how to dispose of large real estate holdings left to a group of family members. Some may wish to continue holding the investment while others want to sell their part for cash. Through an exchange, one large property can be exchanged for several smaller properties, allowing each heir to dispose of their portion as they see fit.