Thanks for checking out the Real Estate Today podcast. Our conversation with Meghan McMahon continues. Right now we’re going to talk about an improvement exchange.
Bobs Blogcast 60 – Megan McMann – Improvement Exchanges
Bob: Bob Nelson, real estate investment broker with Pacwest Real Estate Investments. Joining me today is Meghan McMahon. Meghan is the exchange facilitator, the manager of the Exchange Facilitation Department of Cascade Escrow Cascade Title known as Cascade Exchange Services. She’s also a CPA, very wise and very experienced in the tax deferred exchange world. Meghan, thanks for joining me today.
Meghan: Thanks for having me.
Bob: There’s an opportunity that I think very few people really understand, is the opportunity for me to sell an investment property that would have otherwise produced a large capital gains tax. I could avoid that by selling it but just prior to the sale, assigning the sale contract to you as a facilitator. You effectively take the sale and then we will go out and build something new on a thing called an improvement exchange. Tell me about that if you would.
Meghan: Yeah. This happens a lot for clients who either find the perfect piece of property that they want that needs some renovation and some work, or they find something like bare land, and they say, “I want to do this bare land, and then I want to build something on it.” What we’re able to do is what’s called an improvement exchange where you can use your tax deferred funds to improve the property that’s already there or build something new. There are some restrictions on it such as the taxpayer isn’t allowed to be in title to the property while it’s being improved. What we do-
Bob: You have to own it during the improvement period.
Meghan: Correct, yeah. We would form a special purpose LLC and take title to that property for the period that it’s being improved. Then, also, your time lines don’t change. You still have your 45 days from the date of sale to identify what you want to purchase, but you also have to identify what you’re going to do to it. Then, you have 180 days from your date of sale to get those improvements done, and so that’s where things get hard, because people look at it and they say, “How do I build a house in 6 months?” Well, you now have motivation to get something built in 6 months.
Bob: Now you’re dealing with the city of Eugene or the city of Springfield or whatever community that you’re in. You need to deal with a contractor that you confidence, has the capacity to produce the end result, and they have to have spent all the money in the exchange account by the end of the 180th day.
Meghan: Correct. Yeah.
Bob: I would definitely if you have that in mind talk to Meghan at Cascade Exchange Services. Thanks for joining me again.
Meghan: Thank you.
Bob: I’m Bob Nelson, real estate investment broker with Pacwest Real Estate Investments.
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