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Knowledge can save the deal...1031 reverse exchanges

By
Real Estate Broker/Owner with Right About Real Estate

I received an offer on one of my listings last week. We negotiated terms and the contract was signed by both parties.
The morning after the execution of the offer, the buyer's agent calls me up and says: " my clients want to cancel the deal. They own another property that they want to sell later on and their accountant told them to sell that first and buy something else later, so they can do a 1031 exchange and do not have to pay taxes on the gain."


Now, I have become somewhat obsessed with 1031 exchanges (I think it is the best tool that the IRS has given investors) and I have taken a few seminars on it, read a lot about it and become very knowledgeable on the subject, and so I explain to her that this accountant that her clients have hired is only giving them half of the information. While it is true that if you sell an investment property and buy another one within the IRS guidelines, you can defer the taxes on the gain, but what this accountant is failing to explain to their clients is that the IRS is been so nice to investors, that doesn't only allow them to defer the taxes on the gain when selling and then buying, but they also let investors do what they call a reverse exchange. A reverse exchange is a process that gives an investor the ability to buy a new property prior to the sale of the old property they intend to sell and still defer the taxes on the gain (provided of course that the guidelines are followed.)

The agent had never heard of this and although somewhat confused, said she would go the her clients and tell them there was a choice; they didn't have to lose the property that they had loved so much. I referred her to the Exchange Experts (http://www.expert1031.com/), a very good QI in case you ever need one, for more information. Equipped with this, she went back to her clients and we saved the deal.

This deal just showed me once more that you should always look to learn more about everything. You just never know when you'll need it.

How has knowledge of something saved you a deal?

 

Show All Comments Sort:
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Hi Yael, Great info! I have turned several on my investors on to the 1031 this year and in fact just wrote a deal today that will be a 1031. It really is a great tool. Anyone that works with investors needs to make sure they are utilising this program. I did not know you could do a reverse though. Thanks for the link, I will be studying on that tonight.
Nov 30, 2006 09:09 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans
Yael....  some good information. And Bryant is correct.... and as you wrote, this can save or even make deals. I am forwarding this to a few of my investors.
Dec 02, 2006 02:29 PM
Yael Warman
Right About Real Estate - Dania Beach, FL
Thanks Jeff for making the information more public. I think this is something every investor should know about and implement.
Dec 03, 2006 02:14 AM
Robert D. Ashby
Cruise Planners of South Florida - Plantation, FL
Providing Personalized Travel

Yael,

Sorry I missed this.  Very good information, especially regarding the reverse exchange.  I am still learning more about the 1031s in greater detail myself (eventually I will actualy read the tax code), but I have long since known their benefits and left the 1031 companies I work with to handle my clients. 

I am glad you posted this and if you don't mind, please add it the mortgage planning strategies group as this is good info for that topic.

Dec 08, 2006 06:49 AM
Bill Exeter
Exeter 1031 Exchange Services, LLC - San Diego, CA
1031 Tax-Deferred Exchange Expert

Hi Yael,

You are so right.  Investors used to be really afraid of structuring reverse 1031 exchange transactions, but now that the IRS Revenue Procedure 2000-37 has been around for about 7 years, investors are getting more comfortable with reverse 1031 exchanges. 

Nov 20, 2007 03:49 AM