Friday, May 22, 2009

Another Tool for your Toolbox – 1031 Exchanges

Posted by: Scott Beggs
Investment Specialist
775 336 4644

Scott joined NAI Alliance in March 2008 to assist the company with investment sales. Previously, Beggs spent over seven years with Dermody Properties as Vice President of Acquisitions and Port Management.

Earlier this week I attended a two-part class covering 1031 Exchanges. I did this because I felt like there were more than a few aspects of this part of the IRS code that I did not understand. Am I an expert now? NO. But I do understand the topic well enough to know that when applied correctly, it is a very useful tool for many investors. At the heart of a 1031 Exchange is the ability to defer the tax on the gains realized, that is to say you are not avoiding this tax, you are deferring it. Someone joked with me that in this depressed market no one has gain on the sale of real estate. While transactions are few and far between right now and values are depressed from a few years ago, the 1031 Exchange is still an important tool that all owners (and brokers) should understand. And there are plenty of current sale situations where the 1031 Exchange can still be an effective tool in minimizing your current tax burden upon the sale of an investment property. One of the most basic, and unchangeable, aspects of a 1031 Exchange is the timetable involved. A seller has 45 CALENDAR days from the close of escrow on their sale of their property to identify a trade property. Further, a Seller has 180 CALENDAR days from the close of escrow to complete (i.e. close escrow) on the purchase of their replacement property. If you know nothing else about 1031 Exchanges, you should remember these time frames because the IRS does not allow any exceptions or extensions to these time frames (except by Presidential decree of a disaster area). At the end of the day the total dollar amounts involved in a single commercial transaction dictates that any owner of investment property should consult their tax attorney or CPA to ensure a successful transaction. If you get a blank stare from your broker when you bring up the topic of 1031 Exchanges, you should probably rethink your representation.

1 comment:

William L. Exeter said...

Great post! You are so right.