Today in St Louis - April 17, 2007

Real Estate Agent with Platinum Realty 1999090686

Dennis and I went to a seminar on 1031 Tax Exchanges this evening.  It was sponsored by the Des Peres Keller Williams office.  The material was presented by Coleen Howell, a Vice President with LandAmerica-Commonwealth Title Company.  As we are considering moving up from our two-families to larger investment properties in the future, I thought it would be a good idea to attend.  The class was pretty general, for beginners, which was fine with me; I don't know that much about the exchanges.  I also wanted to educate myself so I could better assist my investment property clients.  Some notes I took tonight are as follows:

Straight Deferred Exchange: 

Your relinquished property begins the 1031 Tax Exchange.

The property(s) you purchase ends your 1031 Tax Exchange.

A qualified intermediary (title company) holds the funds.

You, the purchaser/taxpayer can have no control over the funds.  The money goes into a 1031 Account; it does not go into your hands.

Timeframes must be strictly followed.  You have 45 days from closing to identify your new property(s).  These are calendar days, not business days.

There are 3 rules for the exchange:

1.  3 Property Rule - When you sell a property, you can identify up to 3 properties to purchase.  Most exchanges  fall into this category.

2.  200% Rule - Can buy as many properties as you wish, as long as the market value of the purchased properties do not exceed 200% of the sold price on your relinquished property.

3.  95% Rule - Not used much - You can identify as many properties to purchase as you wish, but you must close on 95% of them to qualify.

The property you identify must be specifically identified.  You must purchase with the intent to hold for investment.  You cannot use the exchange if you are flipping a property (have rehabbed it to sell); this is considered "inventory".

They also touched on Reverse Exchanges, but that was really confusing.  I did learn I need to do more research in these exchanges.  They did say we must always direct our clients to their tax advisor or attorney to make sure the 1031 Tax Exchange is the correct avenue for them to take.






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Pete Elsner
Homes for Sale St. Louis - Kirkwood, MO
Hey Tim!  Sorry I missed it!  Pete.
Apr 17, 2007 04:47 PM #1

The best way to defer capital gains is to use 1031 exchanges, but as this article describes, "It's a tedious process and not many people know how to work the deal."

Defer'Em is one of the best resources for being able to understand the confusion - boot, taxable gain, deferred gain, and new cost basis - and it has a tool you can use to generate IRS Form 8824 for reporting Like-Kind Exchanges on your tax return. Defer'Em is a guided approach that helps you optimize deferrals using all deductible closing costs and exchange fees, and it also generates an Exchange Report which will help you visually understand all the elements of your 1031 exchange. 

Another tool that is very useful is Depreciate'Em, which accelerates depreciation by segmenting deductions, resulting in substantial tax savings. I came across both of these tools when I was reading a article about how landlords often miss major savings.

It's really nice to find resources like these that can help you learn and take advantage of tax-saving opportunities. I had a lot of difficulty understanding depreciation and 1031 exchanges, and even more difficulty reporting them, but tools like these make it very simple for anyone to do

Jul 04, 2007 08:29 AM #2
Bill Exeter
Exeter 1031 Exchange Services, LLC - San Diego, CA
1031 Tax-Deferred Exchange Expert

Hi Tim,

Congratulations on attending your first 1031 exchange class.  This is the beginning that will help set you apart from your competitors!  It is all about positioning, and setting yourself up as an expert on 1031 exchanges is a huge plus!

Nov 18, 2007 05:10 PM #3
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Tim Tanz

St Louis Real Estate
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