Right now, we’re going to discuss how you can set yourself up for a successful 1031 exchange.
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: Let’s talk a little bit more about exchanges, 1031 exchanges, when you exchange real property for other real property as part of your investment strategy to defer the capital gains.
Bob Nelson: Yes, what you’re doing is selling a property for whatever the thing is worth and using all of your equity to acquire the next property. What you’re doing is you’re deferring the tax obligation until a later date. What’s that later date? The date that you sell the property and decide not to exchange anymore.
Marcia Edwards: Well, let’s talk a little bit about how to set yourself up for success in regards to I’ve got some investment property in my name, and I have not previously used it for an exchange. What do I need to do to get ready for this?
Bob Nelson: If it’s in your name, that most likely works. If it’s in a fictitious entity, a limited liability company, a corporation, something that’s other than in your name, it becomes wildly important that before you consider the exchange that you identify is the ownership entity that I’m in, would that qualify me for the exchange? If not, you’ve got to do something about that ownership entity before you start into the exchange process.
Marcia Edwards: Let’s break this down a little bit. So if I’m in an LLC with partners, we want to move the investment to another piece of real estate, what do I need to do?
Bob Nelson: Actually, nothing. You mentioned I’m in an investment with others and we decide to do such and such. An entity, such as a corporation, such as a LLC, a trust, etc., would qualify for the exchange as long as everybody stayed on board, sold the property, and the same ownership entity acquired the next property. The problem comes when one of the joint owners states, “I don’t want to do that. I need to take the sale. I need to get access to the cash.” They want out.
Now, the problem is going to be how do I do that? How do I accommodate the person who doesn’t want to go along, or several people maybe don’t want to go along? They don’t want to stay together anymore. You need to drop them out of the ownership entity and create separate ownership entities with undivided interest in the property. That way you would potentially qualify for a 1031 for those that wish to go forward with the exchange. The rest of them take a sale.
Marcia Edwards: Wow. That structure is important to have down before you’re ready to move. Talk to Bob early on that topic.
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.