Right now we’re going to discuss the steps to a 1031 exchange end game.
Bob Nelson, Eugene real estate investment broker
Marcia Edwards, Eugene residential real estate broker
Marcia Edwards: Bob, I’ve kind of come into your world for just a window of time as we’re working together in a transaction through a complicated 1031 exchange process with multi elements. It is fascinating to me, the spreadsheets that you put together to make sure people land well in these complicated transactions.
Bob Nelson: Well, you kind of have to do that. In our instance, we’ve got parents that own a series of properties and kids that are going to inherit those properties and the kids stating, “You know, I don’t know if I’d like those properties as much as I’d like something else.” So, what we’re able to do is sell a portion of the portfolio, do a 1031. That means sell the property and buy the next property, but legally not pay the capital gains tax that would occur by virtue of that sale, as long as we follow the rules precisely. So, we needed to then find out what’s the ultimate target, find that target property that they’re after, and then identify how do I sell what they own, use the proceeds from that sale to buy what they would like to have and do this all in a very short period of time. That’s the 1031.
Marcia Edwards: And what you don’t think about is the generational shift. What you’re doing is you’re putting it into the hands of the next generation in a way that is optimum for the family and their optimum financial benefit. I find that fascinating and I don’t think people realize that that is what your end game is, is how are you going to land this thing with all the progress and the momentum and the care you’ve taken through one transaction to another to get to where you’re at.
Bob Nelson: Well, and it’s an interesting process because the parents, the trust, it will be the seller of the relinquished property that will also be the buyer of the replacement property. So, the trust will continue to own that property through the lifetime of the parents. As the parents pass on, there is a step-up of basis in the properties that are owned by the trust, and that’s what the kids would ultimately inherit. It’s a generational thing, it’s an inheritance concern or estate planning concern, and a 1031.
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.