Today, it’s a little introduction to the 1031 exchange. Thanks so much for tuning in to the Real Estate Today Podcast.
I’m Bob Nelson, real estate investment broker with Pacwest Real Estate Investments. Joining me today is Megan McMahon. She is the exchange facilitator, the person who is needed for you to complete a 1031 exchange. She is Cascade Exchange Services Eugene, Oregon. Megan, thanks for joining me.
Megan McMahon: Thanks for having me.
Bob Nelson: Let’s go through the basics of a 1031. What do I have to do in order to have a qualified tax deferred exchange?
Megan McMahon: The theory behind 1031 is that, if you own a piece of real property that you’re holding for business or investment purposes and you sell it, typically, you would have to pay capital gains tax on that sale but if you do a 1031 and reinvest in other real property to be held for business or investment, then that tax is differed.
Bob Nelson: Okay. I have to have a qualified property that I’m selling. Not all properties that I would sell would qualify for an exchange. Is that correct?
Megan McMahon: Correct. Yeah. You have to be holding it for business or investment purposes.
Bob Nelson: Okay. It could be though, a bare lot that I’ve held for investment purposes not producing any income. That would also qualify right?
Megan McMahon: Absolutely.
Bob Nelson: Okay. Or timber land, that sort of thing?
Megan McMahon: Yeah.
Bob Nelson: Doesn’t necessarily have to be income property but income property is of course, the thing that most people are after today.
Megan McMahon: Yes. Yeah.
Bob Nelson: The cash flow. I have a qualified property that I started with and I go into or acquire another property and it has to be real property. Let’s emphasize that. What happened with the most recent tax change, the Trump Tax Act? It’s not it’s proper name but that’s who’s attributed to doing it. What happened to the personal property exchanges?
Megan McMahon: The IRS has taken away personal property exchanges. You used to be able to exchange trucks and tractors and that kind of stuff that you’re using for business purposes but now you are no longer able to do that. It’s solely real property.
Bob Nelson: Okay. Now, as I do this, what are the other qualifying characteristics of a fully tax deferred exchange?
Megan McMahon: You have to purchase like kind property, which is your real property to be held for business or investment purposes. You have to identify your replacement property within 45 days. You have to acquire your replacement property within 180 days. You have to buy even or up in both net value and net equity and you have to use a qualified intermediary.
Bob Nelson: We’re going to continue on tomorrow with our next program. Megan, thanks for joining me. You’d find Megan at Cascade Exchange Services, downtown Eugene. 541-687-2233. I’m Bob Nelson, real estate investment broker with Pacwest Real Estate Investments.
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