Today we’re going to talk about identifying properties in a 1031 exchange.
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: Last program, we dove into 1031 exchanges. This is how you can manage your investment portfolio in a successful way to land well at the end of a chain of successful investments. That’d be a quick summary, Bob?
Bob Nelson: It certainly would. My opportunity to sell one property, acquire another property, and not be forced to pay the capital gains tax either at the federal level or the state level, the tax deferred exchange.
Marcia Edwards: Now, we talked about like for like, that is real estate for real estate, that’s investment real estate specifically. We’ve also talked a little bit about exchanging even or up in value inequity. Let’s talk a little more about the timeframes required for a transaction to be successful.
Bob Nelson: From the moment that you sell your, the property you’re getting rid of, going into the exchange with, you’ve got a period of 45 days to identify a limited number of properties that you would be willing to accept. And then you’ve got another 135 days after that to close the transaction. Don’t ever try to get past the 45 days.
The real rule should be try to close that sucker in the 45 day period. Once you’re past the 45 days, you can’t re-identify, de-identify, in the event that you find out that one year after doesn’t work or if somebody sold it to somebody else, and all that other stuff.
Marcia Edwards: Let’s talk about the identification, not just the period of time, but what you can identify. You can identify more than what you’re actually going to seek to purchase in the end?
Bob Nelson: Yes. Yep. I can identify it. Now, there’s three rules. I can identify either three properties of any given value, no limitation on value, but I cannot identify more than three.
The second rule, you can identify as many properties as you would like, but the cumulative value of all those things that you identified cannot exceed twice the sale price of that which you sold. It’s the 200% rule. So I could identify 10 properties, but they, when you add them all up, cannot exceed twice the value of that which I sold.
Marcia Edwards: This is kind of like the game of Risk. There’s so many rules that you need someone to coach you through the whole game.
Bob Nelson: Well, if you mess it up and you start down a process and waste time, it’s a real train wreck. Well, you end up paying the tax. I don’t know if that’s a train wreck to you or not. To me it’s a train wreck.
Marcia Edwards: There’s another timeframe of 180 days available.
Bob Nelson: Well, you do have this 180 days, but the 45 days makes up the first part of it. The identification period, the 135 days after that to get it done, that’s a 180 day period.
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.