Building my team to do my first 1031

[Michele G.]

I have been reading, researching, & looking at properties for a few months now, but I need to get serious and start building my team to help me through my first 1031. My property is in SoCal, but I live in Michigan. I know CA has a law that if I reinvest out of state then upon sale of the acquired property I would have to pay the CG taxes on the relinquished property. I’m willing to look in CA, but I’m not sure I can find the same cash flow that I can in other parts of the country. I am looking at small apartment buildings for my new investment. 

To build my team I am thinking I need the following:

- 1031 intermediary

- residential agent to sell current property

- commercial broker to find new property 

- tax accountant (My current CPA is in MI) 

Am I missing anyone? Does it matter where the QI & accountant are based out of? Should I find an area of the country to invest in or find a broker who can find properties that meet my criteria and then decide if that area fits my investing needs?

Any advice or recommendations would be greatly appreciated! If all goes well I may consider doing the same with another Ca property I have that has also appreciated very nicely. 

[Dave Foster]

@Lane Kawaoka, It's kind of irresponsible to call certain actions that are codified, regulated and practiced thousands of times a year under specific IRS guidance tax evasion!

For full disclosure I am an intermediary for 1031 exchanges.  But I have also used them myself and will continue to do so.  And  I'm OK if you don't like them.    But to call it tax evasion is false and reckless and exposes a lack of understanding of the specific statutes and subsequent decades of case law in sec 1031, Rev procedure 2000-37 (the safe harbor reverse exchange), rev procedure 2002-22 (Tenants in Common syndications), Rev procedure 2004-33 and 86 (Delaware statutory trust), and all of the various regulatory guidances we have for using 1031 exchanges in conjunction with personal property, vacation property, primary residences, retirement, and estate planning etc.

The 1031 has for many decades been the  method of deferring tax on the sale of investment real estate.  And while it is indeed  at face level only indefinite deferral.  To simply stop there is a very shallow look at the impact that the statute has had on real estate investing over the decades.  There are several methods used by wealthy and regular folk alike to use those deferred dollars to generate tax free income and then pass assets to heirs tax free.  

And quite frankly as someone with children and hopefully grand children and causes I want to support with a legacy after I'm gone -  these are strategies I encourage in my own behavior and other as opposed to a philosophy of "who dies with the most toys wins".  Not to mention that the tax free income through my lifetime is awfully sweet.

Whether a 1031 exchange is right for an individual or not should be made by specific situational analysis not blanket like or dislike.