1031 exchange intermediary

[Samuel Lee]

I'm having a hell of a time finding a 1031 exchange intermediary.  Anyone have any recommendations in the Maryland area?  

Also,  does anyone know the cap dollar figure for the 1031 exchange? I hear it's 5.5 million.  What happens if I surpass that.  Can I just create another llc?  

Wouldn't it be better to pay the capital gains now as opposed to later when the capital gains taxes and taxes in general will be much higher? What are the perks to this if this is the case.  I guess besides the hedging in case the market tanks.  

[Natalie Kolodij]

@Dave Foster or @Bill Exeter are both fantastic intermediaries. 

[Natalie Kolodij]

@Dave Foster or @Bill Exeter are both fantastic intermediaries. 

[Dan Schwartz]

A few thoughts:

My understanding was that Donald Sterling did a type of 1031 when he sold the LA Clippers to Steve Ballmer for $2 billion. I don't remember all of the details, but that deferral would be a bit higher than $5.5 million.....

Why defer the taxes? If the new investment is right (an essential if!!) you put the money you'd otherwise have sent to the IRS to work. How long will it take to double that extra money? Use the rule of 72. Can you make 10% per year and double the money in 7.2 years? In that same amount of time, do you expect the capital gains tax rate to double (e.g. from 20% to 40%)? That's your tax risk.

A downside is that you can't depreciate the deferred capital gains. This is important.

Above all, know what you are doing and who you are doing it with well before you sell the first property. This can be a complex decision and transaction. It's not simply "never pay taxes on real estate!"

Good luck!

[Kimberly Brunson]

Ocean Point Associates/Bob Brendel

[Dave Foster]

@Samuel Lee, 1031 is a federal statute that states with few exceptions follow as well.  So any qualified intermediary with a national presence and proven track record can help you out.  

There is no cap on the amount as of now.  But there are some very inflexible procedural rules and reinvestment requirements.  The 1031 is not a DIY project.  You must use a QI and they must be in place prior to the sale of your old property.  They should be able to not only administer the process but also guide you through it with respect to your unique situation and personal goals.

Regarding your last question it's a personal choice.  If you truly think taxes will be higher than maybe you shouldn't do the exchange.  But hundreds of millions of Americans invest in IRAs and 401Ks every year because their contributions are tax deferred.  Waiting until later (although there are actually some ways to make it never) to pay the tax allows you to use that tax for your own investing.  On a $100K gain that could be 20 - 30%.  So what could you do if instead of paying $30K in tax you could take $30K and invest it for the next 20 or 30 years and keep all that profit even if you one day had to pay the $30K back?  Interest free loan from the govt anyone??

That's the power of the 1031 exchange.

[Samuel Lee]

thanks all for such great info!!

[Bill Exeter]

Hi @Samuel Lee, 

There is no "cap" in structuring a 1031 Exchange transaction.  We have done 1031 Exchanges from a few thousand dollars all the way up to our largest 1031 Exchange that we just finished for 337 million.  The more properties involved in the 1031 Exchange the more complicated the transaction gets.

Generally, the concept of deferring taxes allows you to keep the money in your pocket working for you and building your wealth rather than remitting payment of the taxes to Federal and state governments. Many investors continue to 1031 exchange throughout their lifetime and then leave the property to their kids, grandkids or other heirs who will receive the property at a stepped up cost basis (capital gain and depreciation recapture taxes completely disappear), while others will eventually decide to merely sell, cash out and pay their taxes. The timing is completely subjective since no one can determine or predict what future tax rates will be.