Matt Linville, Certified Exchange Specialist

I have to admit that I am jumping on the bio-diesel eco-wagon much later than most. My wife and I have taken steps around the house to make sure that we are doing our part in saving what we can. We have changed our light bulbs, filter our own water instead of buying bottled, decreased our water usage and buy from our local farmers market. I don't think we are on the cutting-edge, but everyone needs to start somewhere, right?

So, my biggest question was how do I begin to go eco with the most time consuming aspect of my life...WORK? I stumbled across the answer with one phone call a few months ago. For those who don't know me...basically everyone...I am a Qualified Intermediary that handles 1031 Like-Kind Exchanges. This tax code consumes most every hour of the six days I spend working. I have had the ability to help thousands of taxpayers in deferring tax of the sale of antique cars, cattle, rental properties, high-rise buildings, jets, beach homes, and most recently, conservation easements.

I am from a fairly rural area of NC and grew up raising cattle, tobacco and gardens. Most of the summer was spent priming tobacco for several families in the area as paying help (more than $3 dollars an hour and all the Pepsi's and raisin cakes one would need) was mostly out of the question. Times were tight for many farmers, large and small, and loans were often taken to make sure that ends were met before the crops came in. I believe that this pattern is still in place, though labor costs have certainly skyrocketed as have all other forms of overhead. The short of it being that incomes were not made to save, but to spend to make the next year possible.

As many farmers are experiencing such an increase in land value and have many developers and realtors at the ready to pull the sales-switch, the decision to sell and have a nice bankroll to supply retirement funds becomes quite easy. But, can a family's tradition and community culture be so easily lost? I hope not, thought it seems the case as I drive around many of my surrounding communities. So, let's talk about conservation easements. As you know there is the ability to donate a conservation easement which allows the taxpayer to take a first- year tax deduction based on a percentage of their Adjusted Gross Income along with a carryover period of up to 15 years. That is fantastic, but what if, for various reasons, the farmer does not want to donate the easement but would sell the easement for cash?

Let me split a fine hair and provide an example of how I was able to help my client. Mr. and Mrs. Smith (original, huh?) owned a farm with many acres. They were approached by an entity and asked if they could purchase a conservation easement on the farmland. The Smith's had no issue with this as they wanted the land to stay farmland. The big question was could they afford the taxes they would have to pay on the income from the purchase of the easement. As I was able to talk with them about options, we discussed the 1031 Like-Kind exchange. The exchange would enable them to sell the easement, defer their income tax and place the proceeds into income-producing property which would supply them a way of life after farming. After this, they are still able to sell the property in the future...with the easement still in tow.

What will be the value of this property since it has such a distinct restriction? Probably less monetarily than it might have received without the attached easement, but what value are we ascribing? This land will stay in tact with the proven and needed ecological helps to encroaching urban development.

There are many who could have written this article much better than I.

I am always humbled by the vast amount of knowledge of my peers. As I continue to learn how my career can better help in our eco-friendly desire for our local areas, I will share. Please continue to share with me as well!

Is there a downturn in our real estate market? Okay, next question. So, how do we continue to prosper in these times...only by adapting to new ideas that help our customers buy and sell in a market which is less than ideal.

I have no cure-all nor am I selling Colonel Harvey's Elixer (For you Andy Griffith/Mayberry Fans), but I do firmly believe that a Reverse 1031 Like-Kind Exchange can open a door of opportunity for both you and your client.

First, what is a reverse exchange? In basics, a reverse allows a taxpayer to purchase a piece of property BEFORE they are able to sell their own property and still maintain a qualified 1031 exchange. Your client would still work with somone like myself, a Qualified Intermediary (QI), to complete this transaction.

Second, what type of situation would this fit? Well, let's say a taxpayer owns a rental property in Florida and has had it on the market for way too long. In this time, you list the tract of land they have always wanted to purchase in South Carolina. The taxpayer would love to buy the land, but hasn't sold their FL property and is afraid someone will step in a buy the land before they can sell their own. They contact you and your client is not willing to delay the closing or accept a contingency. What is the taxpayer to do?

Third, how does it work. Before signing any contract, the taxpayer would consult with a QI to establish a reverse exchange. The QI would act as an Exchange Accomodation Titleholder (EAT) to establish a LLC (single member) which is created to purchase the property from your client. A contract to purchase would be signed between taxpayer and/or assigns and your client. The taxpayer would acquire a loan, in the name of the LLC, with the EAT signing both the Note and the Deed of Trust. This is usually secured by the new property and the bank can also require the taxpayer guarantee the loan. The real esate closing is coordinated with the closing attorney, closing takes place and the deed in recorded in the name of the EAT. Now, the taxpayer has begun their exchange, but most important, your client has sold their property.

Lastly, how does it end for the taxpayer. From the time the property was purchased from your client by the LLC, the taxpayer has 180 days to sell their property in Florida, begin a forward like-kind exchange and use the proceeds from sale to purchase the land from the LLC as their replacment property.

This process can work for your client who needs to buy property or for the potential buyer of your client's property. In either case, it will be in your hands to share this information. Will you be willing to take a few more minutes of time...to learn, to share and to inform? As I have said in previous postings, we are not unteachable but by choice.

This is a question that I am asked quite often. And like most questions I receive, I will ask the client a few questions:

#1. How do you own the slip?

I have a great interest in how they own it. Do they have a lease for a determined period of time or do they own it fee simple?

This is also going to let us know, with an advisors help, wether or not the slip is considered real or personal property. It is important to know how the state judges the property as it is a state-by-state issue.

#2 How long have you owned the slip?

This is a VERY important aspect of any exchange. Thought there is not stated holding period for a property, the longer you hold it the better. Typically a two-year holding period is thought the be okay. If a client owns the property for a year or more, then you have now qualified it as for long-term capital gains, however, any time less than a year and you are entering the "GRAY AREA". The overall concern over time held is to be able to show investment or business use...which leads to the next question.

#3 What has been your use of the slip?

Again, a very important question as you are to have used the slip for business or investment. Since you may typically rent the slip, this would certainly show investment intent. But what if you were not able to rent the slip? There seems to be no difference between the actual renting of the slip or the attempt to rent the slip. You would want to make sure that you advertised it for rent personally or hired someone to do so (typically the marina) and you offered a fair-market rent. Make sure that your true intent shows through here.

# 4 What are you planning to purchase for replacement?

This questions will be more focused once we have discovered how your slip in treated as far as real or personal property. If you are found to own in fee simple as real estate, then your options are many. In a 1031 Like-Kind Exchange, real property is always like-kind for other real property, as long as it is held for investment or business purposes. This means you could sell the slip and purchase land, rental property, a warehouse, hotel, etc.

If the slip is considered to be owned as personal property, then you will be quite limited in a qualifying property in that personal property is only like-kind to property in the same class. Which in this case would mean slip for slip, rack for rack, etc.

Please do not think this would be the limit of questions asked in such an exchange, but this is what I would first like to know. After we have determined the answer to these questions, hopefully with help from the client's tax advisor, we would proceed.

Boat slips and racks are quite the popular investment these days. Many I have talked with had no idea that they could be exchanged. Please use this as a talking point with your cients...you never know...you just might pick up additional business!

TIRED, but feeling great. It is always an experience for me to discuss 1031 like kind exchanges with so many Realtors with different personalities, varying knowledge levels and backgrounds. Though I do talk with many Realtors able to discuss the finer points of the 1031 exchange, the common response seems to be, "Oh yeah, that tax thing...ugh!".

Now, I do realize that matters of taxation may not be discussed at dinner parties or be brought up to "lighten the mood" in conversation (unless you are me). But this is an exciting topic! Each one of us, if we had a chance, would do anything it took to NOT pay Uncle Sam taxes we did not have to. I am talking legally, here! I am sure if I asked for comments, many of you reading this blog would testify to the fact that a 1031 is a great tool for your personal financial growth. So those of you, who are Realtors, I am sure take every opportunity to share this with your clients selling business or investment property. You would never say to them, "Oh yeah, that tax thing...ugh!". After all, you are truly there to assist your clients the best you know how.

Let's get to my point. If you are truly striving to be the best representative for your client, just as I try to do for mine, we realize we need to learn each and every day. We are not unteachable, but by choice. When I meet someone unwilling to learn or who closes themselves to the idea of 1031 Like Kind Exchanges, I feel bad for both that person and their clients. Please realize I do not take it personally, this has nothing to do with me, but I would hope my real estate agent is as learned as could be.

Can the agent who capitalizes on the ideas and advantages of 1031 exchanges benefit? Absolutely!!!!!!

Not only will they help their client, but through the client, help themselves. Let us give an example:

CLIENT NOT DOING AN EXCHANGE

Client sells property and nets $750,000...

Client pays capital gains tax of 15%...$750,000 - $112,500

Client is left with...$637,500 cash to invest

If they leverage this amount at 25%....Proposed acquisition of $2,550,000

CLIENT DOING AN EXCHANGE

Client sells property and nets $750,000...

Client pays NO capital gains tax because of the exchange...

Client is left with...$750,000 cash to invest

If they leverage this amount at 25%...Proposed acquisition of $3,000,000

This mean they have purchased $450,000 more property WITH A 1031!

Is this good for the client? YES

Is this good for you? YES

Why? How much more would your commission be on the $3,000,000 sale?

This does not take into account the fact that a 1031 Exchange also defers:

State Tax

Depreciation Recapture (Huge Plus here!!)

Meaning even more money becomes available to the taxpayer to purchase property. With one side-note, if your client had more cash equity to place into the deal, do you think this may make financing easier for the client? I realize that financing is never an issue with real estate and certainly financing, or the lack there of, has never broken an deal!

Not only this, but let's talk about one more advantage and I will digress. As many of you know, your client faces time-lines in their exchange. There is the 45 days they have to identify potential replacement property and the 180 days to close on any or all of the identified property. If you are helping the client sell their property, and knowing all along the time-frames they are facing, would it benefit you to immediately help that client find replacement property? Sure it would. Not only would you then benefit from the sale of their relinquished property, but now you may be able to sell them one, two, three...replacement properties! Your commission just multiplied because you were aware of the 1031 Exchange and how to help your client through.

Okay, I could go on, but I think you get the picture. For those of you who are taking advantage of the 1031, keep going! Like you need me to say that. But for those of you who have been shunned this wonderful tax-savings tool, give it a chance! I never make empty promises, so this promise I make, your real estate career could turn that corner your always wanted if you would put into practice the simple process of a 1031 Like Kind Exchange.

If I can be of any help as in writing about specific topics or giving a general overview, please let me know. I want to blog only those things which will help our wonderful community here grow!

am tired but feeling great. It is always an experience for me to discuss 1031 like kind exchanges with so many Realtors with different personalities, varying knowledge levels and backgrounds. Though I do talk with many Realtors able to discuss the finer points of the 1031 exchange, the common response seems to be, "Oh yeah, that tax thing...ugh!".

Now, I do realize that matters of taxation may not be discussed at dinner parties or be brought up to "lighten the mood" in conversation (unless you are me). But this is an exciting topic! Each one of us, if we had a chance, would do anything it took to NOT pay Uncle Sam taxes we did not have to. I am talking legally, here! I am sure if I asked for comments, many of you reading this blog would testify to the fact that a 1031 is a great tool for your personal financial growth. So those of you, who are Realtors, I am sure take every opportunity to share this with your clients selling business or investment property. You would never say to them, "Oh yeah, that tax thing...ugh!". After all, you are truly there to assist your clients the best you know how.

Let's get to my point. If you are truly striving to be the best representative for your client, just as I try to do for mine, we realize we need to learn each and every day. We are not unteachable, but by choice. When I meet someone unwilling to learn or who closes themselves to the idea of 1031 Like Kind Exchanges, I feel bad for both that person and their clients. Please realize I do not take it personally, this has nothing to do with me, but I would hope my real estate agent is as learned as could be.

Can the agent who capitalizes on the ideas and advantages of 1031 exchanges benefit? Absolutely!!!!!!

Not only will they help their client, but through the client, help themselves. Let us give an example:

CLIENT NOT DOING AN EXCHANGE

Client sells property and nets $750,000...

Client pays capital gains tax of 15%...$750,000 - $112,500

Client is left with...$637,500 cash to invest

If they leverage this amount at 25%....Proposed acquisition of $2,550,000

CLIENT DOING AN EXCHANGE

Client sells property and nets $750,000...

Client pays NO capital gains tax because of the exchange...

Client is left with...$750,000 cash to invest

If they leverage this amount at 25%...Proposed acquisition of $3,000,000

This mean they have purchased $450,000 more property WITH A 1031!

Is this good for the client? YES

Is this good for you? YES

Why? How much more would your commission be on the $3,000,000 sale?

This does not take into account the fact that a 1031 Exchange also defers:

State Tax

Depreciation Recapture (Huge Plus here!!)

Meaning even more money becomes available to the taxpayer to purchase property. With one side-note, if your client had more cash equity to place into the deal, do you think this may make financing easier for the client? I realize that financing is never an issue with real estate and certainly financing, or the lack there of, has never broken an deal!

Not only this, but let's talk about one more advantage and I will digress. As many of you know, your client faces time-lines in their exchange. There is the 45 days they have to identify potential replacement property and the 180 days to close on any or all of the identified property. If you are helping the client sell their property, and knowing all along the time-frames they are facing, would it benefit you to immediately help that client find replacement property? Sure it would. Not only would you then benefit from the sale of their relinquished property, but now you may be able to sell them one, two, three...replacement properties! Your commission just multiplied because you were aware of the 1031 Exchange and how to help your client through.

Okay, I could go on, but I think you get the picture. For those of you who are taking advantage of the 1031, keep going! Like you need me to say that. But for those of you who have been shunned this wonderful tax-savings tool, give it a chance! I never make empty promises, so this promise I make, your real estate career could turn that corner your always wanted if you would put into practice the simple process of a 1031 Like Kind Exchange.

If I can be of any help as in writing about specific topics or giving a general overview, please let me know. I want to blog only those things which will help our wonderful community here grow!