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Segment 3A: Protect Yourself

What’s the major concern of a tax deferred exchange?

Lack of a good game plan that you and your client will follow and #2 lack of time. Lack of time will even potentially kill a good game plan. So, let’s go into how I go about doing that and how I go about monitoring my time and my energy.

There’s some major concerns, some major red flags to start the show. If your client does not detect or act in a manner that would show he understands or she understands the urgency of the transaction, you’re going to have a problem.

It’s a huge timed event. If they lack that understanding of their tax consequence, if they lack the understanding of how to complete the transaction, you’re in for some problems. Again, early stage client counseling tends to solve that.

The time restrictions of the time deferred exchange as contained in Internal Revenue Code Section 1031, it simply says all I have to do is identify a restricted number of properties in the initial 45-day period following the sale of my relinquished or down-leg property.

That’s a huge mistake.

I’ve heard CPAs counsel their clients. All you’ll have to do is identify it on a piece of paper.

Let me tell you what’s going to happen:

Okay you’ve identified 3 properties during the 45 day period. You’ve written them on a piece of paper. You’ve handed them to the exchange facilitator that will be acting as a facilitator of your exchange and here’s what happens – you didn’t do anything but what was required by the code.

On the 46th day one of the properties burns down. It’s no longer available. You didn’t start the fire, you don’t get the benefits of the insurance at somebody else’s property.

On the 47th day again you didn’t put property two under contract, the seller of that property sells it to another person. It’s no longer available.

One is down, two is down and the third one on the 48th day following the transaction schedule, the owner announces “oh gosh I’ve got a problem. I’m going to have a divorce. It’s going to be a nasty thing and I’m not going to be able to probably sell this property for about a year.

Guess what, one is gone, two is gone, three is gone…PAY THE TAX.

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  • Segment 3B: Protect Yourself

     You did everything the tax code required and you’re still paying the tax. Let’s…

  • Segment 2A: How to Increase Client Success

    The key to absolute success in the exchange deals with client counseling. I couldn’t emphasize…

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Robert W. Nelson, CCIM, CRE

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