Thanks for joining us on the Real Estate Today Podcast. We continue our six part series on 1031 exchanges. Here’s part two.
Bob Nelson: I’m Bob Nelson, Eugene commercial real estate investment broker with Pacwest Real Estate Investments.
Marcia Edwards: And I’m Marcia Edwards, residential broker with Windermere Real Estate. Joining us today again is Megan McMann. She is the exchange officer for Cascade Exchange and she rocks. Let’s talk a little bit about the exchange. Thanks for joining us, Megan.
Megan McMann: Thanks for having me. So 1031s take place when you have a business or investment property that you currently own that you want to get rid of and buy something else. So what it allows you to do is it allows you to sell your current property and then reinvest in something else that fits your needs right now and not have negative tax consequences.
Bob Nelson: So what I’m doing is not paying the capital gains tax that would have occurred by result of this sale and simply pushing it down the road until I sell that property.
Megan McMann: Exactly.
Bob Nelson: Is that correct? Okay. What happens if I do another exchange at that point?
Megan McMann: Then you keep kicking the can down the road.
Bob Nelson: Okay.
Megan McMann: I have clients that I call my lifetime exchangers and what they do is they start out with a single property and then as their life progresses and their needs and their wants change, then they change their investment strategies and they buy different things and they exchange and they exchange and they exchange. They kind of expand their portfolio while not having those tax consequences.
Bob Nelson: Okay. What happens if they keep doing this thing and then sooner or later die? I mean nobody’s getting out of this thing alive.
Megan McMann: That is true. When they end up dying and passing the property onto the heirs, they get what’s called a step up and basis where their investment in the property is marked up until their date of death. So then they’re able to avoid those taxes.
Bob Nelson: So at that point the inheritor is going to be receiving the property at a new basis, not necessarily with all the squashed down tax bill that would have been there.
Megan McMann: Correct.
Bob Nelson: Outstanding.
Marcia Edwards: What are some of the biggest challenges in today’s market for the exchange?
Megan McMann: Right now people are having trouble finding their replacement property within the given amount of time. They have 45 days from their date of sale to find what they want to purchase and our market is kind of crazy. So finding something that’s suitable that they actually want to purchase and getting it lined up within those 45 days can be a challenge.
Bob Nelson: That’s my job and I love it. I’ve been able to find things, but I’ve got to really work fast and hard.
Marcia Edwards: A good starting point is with Bob or with Megan McMann at Cascade Escrow. I’m Marcia Edwards, Windermere Real Estate.
Bob Nelson: And I’m Bob Nelson, Eugene commercial real estate investment broker with Pacwest Real Estate Investments.
Leave a Reply