1031 Exchanges

My first few dozen tax deferred exchanges were in the days before what’s now called the delayed exchange — or back in the dinosaur days, a Starker exchange. You think they’re fun now? Try closing all properties involved in the same moment in time, at least virtually. The pretty phrase used back then was simultaneous close. I owe countless sleepless nights to that innocuous phrase. Today? Tax deferred exchanges are far less stressful, at least in most cases. The rule requiring the closing of all properties simultaneously no longer applies. We can thank the Starker family for that, another story, but incredibly interesting.

It’s Still About Deferring Taxation — and More

This isn’t about the many, many rules governing tax deferred exchanging. This is about why you should or shouldn’t opt to execute one. The oversimplified guideline is the policy taught to me eons ago.

Don’t execute a 1031 exchange unless there’s no other choice, AND it so vastly improves your status quo the decision is a Captain Obvious no-brainer.

The result of a 1031 should be a significant increase in cash flow, or capital growth, or both. Sometimes it can be part of a sideways move of sorts. That is, a simple improvement in the quality of your buildings and/or their location(s). In sports that’s known as addition by subtraction. You rid yourself of previous unfortunate investment decisions and the taxes that may’ve attached themselves to your escape. This happens more than you might imagine. An example came over a decade ago in my last active SoCal years.

The PorTfolio Rehab Exchange

Investors called me wondering if I could help them rethink their investment plan for retirement. They’d just began regrouping from being kneecapped by the Nasdaq crash. They’d watched what was to be a pivotal part of their retirement income lose over a …read more