I had the wonderful opportunity to listen to Geoffry Allison speak today.
Geoffry is the Kansas/Missouri Regional Manager with Starker Services incorporated.
After 11 years selling real estate and working with dozens of investor clients, I thought I knew all I needed to about 1031 exchanges (also called: starker exchanges, tax deferred exchanges, like kind exchanges)
What I learned today is that there is a fair amount of mis-information out there about 1031 exchanges.
The basics: A 1031 exchange is when an investment property owner sells a property and rolls the proceeds back into another "like kind" property. This type of transaction DEFERS the tax liability.
EXAMPLE: Joe has a rental home and wants to sell it for $200,000.00. He owes $100,000.00. If he does a 1031 exchange, he could roll the profit into another investment property and pay no capitol gains taxes at this time.
Here is one of the things I learned today.
Joe could sell a single family home and buy a four-plex or he could sell a four-plex and buy some farmland that he is going to lease to a local farmer. Previously, I have been told by many professionals that "like kind" was interpreted by the IRS as, two properties that are the same physically... ie: sell a duplex, buy a duplex or sell some farmland, buy some farmland. Now, I understand that the IRS says that "like kind" means "like usage." If the property was used to generate rental income, the next property has to be used to generate rental income. Also, the property can be substaintially larger is size, value or rental income.
The next thing that was explained today is that a property owner can sell multiple properties as 1031 exchanges and then purchase one more expensive property. So Joe could sell three small rental homes worth $75,000 each and purchase a four-plex worth $500,000.00.
There are three things the IRS looks at Value, Loan Amount and Equity. ALL THREE must be equal or greater when doing a 1031 exchange.
One VERY important note. In order to qualify for 1031 status, you MUST use an intermediary to handle the funds and transfers. You cannot have your name on the HUD-1 as the seller or buyer and you cannot have any control over the funds.
After today, I am recommending Starker Services, Inc and Geoffrey Allison to all my investor clients.
Now for the legal. I'm not a lawyer, CPA or financial adviser. The information in this blog should not be substituted for the expert advice that you can and should get from your lawyer or CPA... but I would have them talk to Geoffrey Allison at 913-375-1031
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