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You're watching HFO-TV.
Welcome back to HFO-TV, I'm Aaron Kirk Douglas, marketing director with me today is Toija
Buetler, she's an attorney and regional manager of IPX 1031 Exchange.
Welcome Toija! Thank you very much Aaron, my pleasure to be here.
Today's topic is 1031 basics. First off, I'm wondering for the novice investor could you
tell us exactly what is a 1031 exchange?
Well a 1031 comes under a provision of the federal tax code. It allows folks who own
an asset -- typically rental houses, multifamily, commercial -- if they're selling that property
and they have gain in the property and they don't want to pay tax on the gain -- they
don't have to as long as they will get out with their commercial broker, sell their property,
buy their replacement property, follow a bunch of rules -- the whole point of a 1031 exchange
is you're selling an asset with capital gain and don't want to pay tax on the gain. They'll
get a deferral. The gain doesn't go away; the gain goes into the new property through
the process of the 1031 exchange. It's a tax deferral.
Ok -- those are some of the benefits. So what is considered a "like kind" property when
you're handling a 1031 exchange?
You know the like-kind rules are really the best rules in 1031. All real estate is like-kind
with all other real estate as long as what the client is selling is either rental property,
commercial property, or land for most folks. Land for a builder or developer is considered
inventory so that wouldn't qualify. But rental property, commercial properties or land for
most folks are eligible for 1031 and then all real estate is like-kind with all other
real estate as long as what our client is selling or buying is land or commercial or
rental. So the best feature of 1031 is how generously defined "like kind"is.
So it can be rental for land, rental for commercial, industrial for retail -- all real estate,
all like kind as long as it's rental, commercial, or land on both sides of the equation.
What should I look for when I am shopping for a qualified intermediary to handle that
for me?
Folks would think that all exchange companies are the same and they're just going to shop
for the cheapest fees for certain; and in fact what is so important when they are shopping
for an exchange company is to make sure that they are working with the company that has
expertise, knowledge, and bonding. For the most part, exchange companies are unregulated.
We have on the west coast a bit more regulation in terms of a million dollar bond and two
hundred and fifty thousand of errors and omissions. Very limited regulation of us. The client
who is looking for an exchange company really needs to ask how much bonding the company
has, do they have the errors and omissions that will protect them if something were to
go wrong in that 1031. They want to find out where those exchange funds are being held.
And what their security is -- are there auditors that are overseeing the exchange company's
operation.
So they're looking at security and expertise as the basic comparison point rather than
fees. They will find $100-$200 difference between any one exchange company fees but
the security is where they are really going to find a difference between the companies.
Well that's it for 1031 basics. Thank you Toija!
Thanks Aaron, my pleasure.
See you again next time on HFO-TV.
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