1031 Exchange

Wow, what a powerful tool we have have built into our tax code.  This is something that I suggest we as Realtors should have knowledge about and keep at the forefront of our minds when we are dealing with our real estate investor clients.  It appears the goverments' intend upon creation(1925) was to only allow investors to "trade" properties "of like kind".  However in 1991 the IRS finalized new regulation which stated the current identification and replacement rules.  I would image the majority of Realtors don't deal with real estate investors on a regular basis(especially in this market) so this may be something that is often overlooked or forgotten.  Also since a 1031 exchange deals with tax laws, it seems CPA's not Realtors tend be the ones that initiate the idea to investors.  But what a POWERFUL and legal way for people to avoid paying capital gains taxes on real estate!!  In a nutshell, if someone owns real estate and it's used solely for investment or rental purposes for 2 years, they can upon selling the property roll the entire net sales amount into another property without paying any taxes on the capital gains.  Real estate investors have no limits on the number of times they can perform a 1031 exchange as long as all the criteria has been met!! It doesn't seem uncommon for investors to save anywhere from 20-50k on a 1031 exchange from the avoidance of taxes.  However many factors go into the tax savings equation including recapture taxes, state taxes, and capital gains taxes making each transaction different.  I recommend we as Realtors encourage our clients to discuss these options with an accountant to find out which situation best suites their wants and needs.  There are so many aspects and advantages it would behoove me to try to list all of them.  Since all 1031 exchanges are done through a Certified Exchange Specialist I encourage all Realtors to have a contact of a CES in their local markets.  We as Realtors should be a source of knowledge in all aspects of a real estate transaction for our clients.  Part of our professional image is be prepared and ready for all situations.  Especially ones that can best benefit our clients!