Since it’s one of the most popular investment vehicles out there, you’ll want to know your 1031 exchange options. In this episode of our on-going blogcast series, David explains them all.
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Today we’re talking with David Moore, company-founder of Equity Advantage, a firm that specializes in tax deferred investments, in particular, IRS section 1031 exchanges.
David, what are my 1031 exchange options?
David Moore: Well we have quite a few, and typically people think of an exchange as a swap, so you would have something, I would have something and it would have to be mutually beneficial in order to do that exchange. 1031 actually started off in the mid ’20s, the roots of it, but rarely do we see a true exchange or a true swap. We do structure them for people, or we’ll see situations where we’re using an asset as partial consideration for something else, and that person with a smaller asset is literally doing an exchange into this larger asset.
In today’s world, most exchanges, most 1031s are of three-way variety in that they utilize a third-party Accommodator to step in the middle of the transaction. You would put something on the market, you would actually find a buyer, you would then give it to the Accommodator just before sale, you tell them what to buy, they buy it and they give it back, So the exchange is actually between you and the exchange company, not with you and the buyer or you and the seller.
Probably 70% of the transactions are delayed exchanges. Your reverse exchanges also where we buy something today and sell later, that we’d have the same 180 day time when we have a delayed exchange. We can also do improvement exchanges, where we can go out, buy a property and literally build to suit. I guess a final variety might be what we call a blended transaction.
A blended transaction would be a transaction where we buy a property today, maybe using a reverse, maybe we have a series of properties going away, that would start the clock on that reverse transaction. Then the property sells. Maybe you don’t use all the money on the acquisition from that reverse format, so we use the balance of the funds, the residual proceeds on additional properties going forward. You’d have a partial reverse and partial delayed, and we called that a blended.
You can see there’s a large variety out there, and the only way you’re gonna learn about it is to call up and ask. You’ve got to call and ask before you sell or buy anything, before closing.
Well David, what’s the best next step?
David Moore: I’ll say the same thing I always do. The only dumb question is the one that’s left unasked. So please call, ask in advance, don’t wait till after the fact. It’s amazing the number of people that call up a day or two after the property’s closed, and that’s unfortunately too late.
Thank you, David. Listeners may call 503-635-1031 or can visit 1031exchange.com for more information.
Navigating 1031 exchange options takes a professional, and you can count on the whole team at Equity Advantage to help. Your investments are just too important not to have an expert on you team. Give the folks at Equity Advantage a call to get started!