Let’s look at some of the rules of the 1031 exchange.
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: Let’s talk a little bit about your favorite topic or one of them, 1031 exchange Bob.
Bob Nelson: Yes, I love exchanges. I’ve done that for 51 years of my career.
Marcia Edwards: Well, I’m interested in talking about the exit strategy. You’re exchanging property to property. At some point it is a deferral and you pay the piper, right?
Bob Nelson: Sooner or later there’s one option out and that’s if you die. All of the stocked up deferred capital gains is forgotten about. It becomes an estate issue.
Marcia Edwards: So swap till you drop as they say.
Bob Nelson: A swap till you drop.
Marcia Edwards: Let’s talk about some of the ideas in regards to ways to set yourself up for success in getting your funds out of the 1031 exchange.
Bob Nelson: Well, it’s interesting because people will occasionally head to an exchange and then decide they don’t want to do it and they turn to the facilitator and say, “Okay, give me my money.” Now that would suggest that the exchanger had access to the money anytime that they wanted it, which would eliminate their exchange facilitators legal position to perform that particular function.
If that exchange facilitator became eliminated or let’s say disqualified, all of the exchanges that they’re working on would be in serious jeopardy. So the exchange facilitator is going to turn to you and say, “No, I’m not going to do that. I’m not allowed to do that.” So it becomes then a function.
Have you identified property during the 45 day identification period? If that is the case, you will not be seeing your money out for about a half a year. The end of the 180 day period. If you did not identify any property which was a requirement, then it may be possible to receive it at the end of the 45th day. It’s a function of how the facilitator believes their legal obligation to be.
Marcia Edwards: So as you start into the process, you’ve got a commitment of those funds.
Bob Nelson: You’ve got a commitment, right. It’s a time commitment. If you decide the day after you started this process that you’re done, you can’t just turn to them and say, “I quit.” It’s an interesting situation but be aware of it.
Marcia Edwards: It inspires me to say, know what you’re getting into and make sure you’re talking to Bob Nelson so you know what the process will be from beginning to end when you take the first step.
Bob Nelson: That would be helpful.
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.