Let’s take a look at the 1031 exchange and like-for-like.
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: I am fortunate to stand next to Bob Nelson because he is very wise to the specific nature of 1031 exchanges. This is a tool in real estate if you don’t understand it or been exposed to it, it’s time that you are, so today’s the day. Thanks Bob for being here and doing what you do.
Bob Nelson: Hey, thank you. I appreciate it. I’ve been doing 1031s for 51 years. It’s kind of second nature to me, but I will absolutely assure you if you have not done one and you try to figure out how to do it, you’re probably going to botch it up. The big issue is timing.
Marcia Edwards: Let’s start with what a 1031 exchange is specifically in the elevator speech version.
Bob Nelson: Sure. You have to own a property that qualifies for a 1031. That’s the one you’re going to sell, and you have to acquire a property that qualifies for a 1031 exchange. That’s called like-for-like.
It’s a property held for investment purposes or a property that you hold as a productive asset in your trader business. Could be a bare lot that you own for investment purposes, and you can acquire any of those three categories. Sell this one, acquire that one. So, the first rule is like-for-like, real property for real property only.
Marcia Edwards: Bob, the elevator wasn’t that tall.
Bob Nelson: I can’t help it. The rules are the rules.
Marcia Edwards: There are rules. You suggested like-for-like being rule number one. Rule number two I’ve heard you mention previously is about even-or-up in value and equity.
Bob Nelson: Right. Whatever I sell is the measuring point for what I must acquire. I have to acquire a property of equal or greater value and I have to spend all of the money that came out of the sale of my relinquished property, the one that I got rid of.
If I do that, I have also crushed the hurdle for a fully tax deferred exchange. It’s possible to have a partially tax deferred exchange if you wanted to pull some cash out of the deal, but you will pay a capital gains tax on the cash you pull out. You’ll still have an exchange on the rest of it.
Marcia Edwards: Let’s squeeze in the conversation about very restrictive timeframes in regards to the exchange.
Bob Nelson: Okay. From the moment that you sell the property that you’re getting rid of and going into the exchange with, you have a very brief period of time to identify a limited number of properties that you would be willing to acquire. Literally, it’s an identification rule, 45 days.
Marcia Edwards: So you’ve got to have a good idea of the market and the rules to the game early on. Give Bob a call if you’re interested in knowing how this could work for you.
Join Eugene, Oregon, real estate experts: Bob Nelson, Real Estate Investment Broker with Pacwest Real Estate Investments, and Marcia Edwards, Residential Real Estate Broker with Windermere Real Estate, daily at 5:30pm on KPNW for the “Real Estate Today” radio show.