Of late I’ve had maybe half a dozen conversations involving tax deferred exchanges. As one astute observer pointed out, there’s even some business models based on them. True enough, but I’ve seen so many folks get themselves in unintended places while worshiping the false god of 1031. I’m here to tell ya true — it ain’t the end all be all to the real estate investor. It’s merely another tool.
Ever met a carpenter whose tool belt had only a hammer? He has levels, saws, various measuring tools, and a bunch more. He uses the tool made for the job at hand. Why? He’s found through experience pounding nails with a level makes for a crazy day. That analogy is nearly exactly on point with the real estate investor’s tool belt. There are times when a partial exchange will do the trick.
Your Purposeful Plan takes into account how you will exit your investments when the time comes. Though most folks will make use of the tax deferral, it’s not anywhere near universal. This is especially the case for those with household ‘day job’ (In IRS-ese that’s ‘ordinary income’.) of $150,000 or more.
Let’s skip process for tonight, and go straight to results. Oh, now yer paying attention.
I’ve constructed transactions that were partial exchanges, included installment treatment, hypothecation, and took untaxed cash to boot. (Pun fully intended. Don’t ask — another post altogether.) An every day experience? Not even close. But it happens when it happens ‘cuz it makes sense at the time, and is the right thing to do.
In other words, the right set of tools is crucial to any Purposeful Plan. Not having the knowhow at your disposal can cost you, even though you did well, using the tools for which you had access. Every year I’m called to do my best to undo, or remix, so to speak, transactions having entered the Twilight Zone. Sometimes it’s too late, other times I’m able to help.
The common denominator in most cases was the underlying belief that the 1031 tax deferred exchange is by nature, almighty. I’m here to let ya know, that just ain’t the truth. There is careful analysis which should be done in just about every scenario. Rarely is it clearly obvious which way to go. Very rarely. Just like the experienced carpenter will eschew the use of a nail gun for Grandpa’s trusty hammer — sometimes I advise clients to go easy on the tax deferred exchange.
Sometimes it’s tied to geography. If you’ve been investing awhile in markets like San Diego, San Mateo, Palo Alto, or San Francisco, an exchange will more likely than not be a part of your real estate investment future. Still, many times in San Diego we’ve avoided a total exchange due to specific circumstances of that particular client.
BawldGuy Axiom: When it comes to real estate investment, everyone has their own equation to solve. Corollary: That equation can and probably will change.
And for the record, I checked. There really is no statue on Easter Island honoring 1031′s. Just so ya know. And, there’s absolutely nothing, zero, nada that’s the least romantic about ‘em.
Now’s the time to get started on your own scenario. That’s pretty dang easy, ‘cuz all that’s needed is for you to click on this Contact BawldGuy doohickie right here. You’ll know what to do after that.