What Is a BLENDED 1031 Exchange? Working with Blended Transactions
A 1031 exchange is an IRS-authorized process where like-kind business or investment property is exchanged without immediate tax liability to the property owner (Exchangor). The BLENDED exchange refers to combining different exchange formats (delayed, reverse, and improvement) into one exchange. This approach allows for further 1031 exchange flexibility, particularly when more than two properties are involved in the exchange.
What You Will Learn
- When you would want to combine exchange types
- How a blended exchange works
- Similarities and differences of a blended exchange
David Moore: Hello David Moore, Equity Advantage, and we’re going to talk a little bit about combining transactions. In the Equity Advantage lingo we sort of call ’em blended transaction, but an example of which could be a situation where we’re combining a delayed exchange and a reverse exchange.
Quite often what will happen is somebody will have a project, a property that they want to acquire before they’ve sold anything. And what will happen is if they’ve got the financial ability to go buy that property pre-disposition of another one, we can do a reverse exchange.
David Moore: So, as I said, it’s going to require our client’s ability to make that transaction happen. We don’t loan money, but we’ll create that reverse exchange with whatever funds are available for that purchase, and we’re going to do it as a reverse exchange, and then we’re going to have 180 days from that date to actually convey that replacement property to the tax payer, if we’re talking about, let’s say, a warehouse reverse exchange.
I apologize, I’m not going to get into details of reverse exchange, we just don’t have time. You can check out; we’ve got several videos on that topic and take a look at those if you’ve got more questions on reverse.
David Moore: But let’s say we’re doing a warehouse replacement reverse exchange. What’s happening in that transaction is you’re going to loan us some money, we buy the property with our Exchange Accommodation Titleholder it ain’t in a just a fancy acronym for a single member Limited Liability Company that we’re the member of.
And we basically have a debt to you for whatever that down payment was. We’ve taken ownership of the property, and when your property sells, we’re actually going to convey that new property, that replacement that we’ve warehoused back to you completing that transaction. We’ve, at that point, completed the reverse portion of that transaction.
David Moore: Let’s say that we only buried a portion of your funds, now we’ve got excess funds from that sale, and we are going to carry them forward via delayed exchange. So once again, our warehousing the replacement property means you haven’t relinquished the relinquished property until you do.
We’ve got 180 days from the date of acquisition via the reverse, and we’re going to have 180 days from the date of disposition of your relinquished property to complete the balance of any acquisition properties. And when everything’s said and done, you’re looking at the aggregate value of what was acquired via the reverse and via the delayed exchange, and as long as we’re going across or up in value and in equity between those different transactions, we’re going to be totally tax deferred.
David Moore: I hope that has helped a little bit on what we would call a blended transaction, or as far as giving you an example of combining transactions, a reverse and a delayed exchange into one transaction. Once again, David Moore, Equity Advantage, 1031exchange.com. Thank you.
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, 503-635-1031, to get started!