How To Make A 1031 Exchange Work - Even When The 45 Day Identification Window Is Scary
Sometimes The 45 Day Identification Window Can Be Scary
The 1031 Exchange Issue:
Real estate investors, Tom and Betty are selling one of their investment properties for a net sales price of $2 million. Their adjusted cost basis is $500,000.
Upon the sale of the property, the mortgage of $500,000 will be paid off. The remainder of the proceeds ($1,500,000) will be sent to the 1031 exchange accommodator. The rules of the 1031 exchange are pretty basic. They have 45 days to identify replacement property(s). They have a total of 180 days to both identify and close on the new property(s). The new property(s) must be equal or higher in value and, the property(s) must be held for investment purposes. Additionally, all proceeds captured by the 1031 exchange accommodator must be invested into the new property(s).
Tom and Betty soon discover there is a problem with their transaction. Now is a great time to sell but a bad time to buy. Inventories are low and the price of replacement real estate is sky high. However, they decided to use our services.
With us, they have four tax deferral options:
1. Place their money into a 1031 Exchange and find a new property to buy.
2. Place their money into a 1031 Exchange, look for a new property to buy, and use a Delaware Statutory Trust (DST) as a backup if they cannot find anything they like.
3. Place their money into a 1031 Exchange, look for a new property to buy. If they cannot find anything to identify, then on the 46th day the exchange fails. The accommodator then distributes their funds. Taxes are now triggered? Yes and no. Receipt of the proceeds triggers taxes however, we have another back-up option called an Opportunity Zone Fund.
4. Place their money into our 1031 Exchange accommodator so we can provide them the ability to safely look for a new property to buy and provide the DST, Opportunity Zone, and another strategy called the Deferred Sales Trust if they cannot find a new property they link. They loved this idea.
Tom and Betty began this transaction with $1,500,000 in cash but were worried they couldn’t find the right property for them to buy in this tight, high priced real estate market.
Because they worked with the Tax Deferral Consultant at DeferTax.com, Tom and Betty now have four possible tax deferral options.
Note To Realtors(and advisors?)
As a real estate professional, you've probably run across investors that have either been reluctant to sell due to taxes or have had issues like the one above.
We are Tax Deferral Consultants.
We help to create a win, win, win scenario:
1. The client wins because they get to discover tax deferral options they perhaps never knew existed.
2. The real estate professional wins because they can now provide a more complete service to their clients, they can help their clients get the information they need, and they get a listing they probably couldn’t get on their own. The best part is they keep 100% of their commission.
3. The tax deferral consultant wins because tax deferral is all we do.
What is a Tax Deferral Consultant?
Tax Deferral Consultants use tax strategies to legally reduce or defer capital gains taxes owed on the sale of a primary residence, investment property, business, stocks, or almost any highly appreciated asset. Many consultants are fiduciaries or act in the fiduciary capacity.
Why Use us?
Who would you rather use? A 1031 exchange accommodator that that only offers one tax referral option? Or a 1031 exchange accommodator that can literally offer hundreds of different scenarios. We have13 different tax deferral strategies and are adding new ones as we grow. These can be used individually or in combination with each other. Since most tax deferral options are fairly complicated, we have simplified the explanation of how they work into simple two or three minute animated videos. You can see our videos here: https://startanexchange.com/videos/ or www.DeferTax.com.
Also, we are nationwide educators on the subject of tax deferral. Most individual net worth is typically tied up in appreciated assets like real estate and business assets, not IRA’s401k’s and cash. Our mission is to educate real estate professionals and investment advisors on how to provide more complete financial advice on how to legally free up the equity while keeping most if not all the money working for the client. Many strategies previously have only been only used by the very wealthy.
We would love the opportunity to do a class for your office or interview with you to become apart of your team so that you can learn to provide these strategies to your clients. Best of all, your clients remain your clients and we charge you nothing.
If you’re interested in learning more, I've added my calendar link below to make scheduling a time to speak simpler.
Thanks, Chris Shockowitz
PS: We are also 1031Exchange accommodator reps and our service can save a failed exchange from paying taxes. For more information, check out https://startanexchange.com/
* Note: We are not CPAs or tax attorney’s. The scenario below is for educational purposes only. Do not use it for your personal financial situation without speaking with a tax professional.