Today I’m here with Greg Burns, senior vice president of IPX1031. Greg has been a huge resource to us and our clients, and he is here to discuss the 1031 Exchange.

As an accommodator, Greg acts as a qualified intermediary, or escrow, between the sale and the purchase. The client cannot have control over the money during the exchange process, so Greg is responsible for assigning the money to the sale for sellers and assigning it to the purchase for buyers. Greg handles about 400 1031 Exchange transactions each month.

The 1031 Exchange is one of the last great tax codes that exists. The main benefit is the 1031 allows investors to take the money that should go towards taxes and use it to make more money. Essentially, you are selling an investment or business property and you are exchanging it for another property that you intend to use as an investment or business.

There are many reasons why you may need a 1031 Exchange: estate planning purposes, finding a property closer to where you live, getting out of management responsibilities, and more.

When you use the 1031 Exchange, you must adhere to the like-kind rule. This rule exists because the 1031 applies to anything held for productive use in a trade, business, or for investments. It’s not just real estate. Fortunately, the like-kind rules for real estate are pretty simple: you can exchange any real estate for another piece of real estate for investment or business purposes.

Now, some people want to exchange their investment properties for a vacation home or their dream home. Your vacation home may qualify as an investment so long as it is used less than two weeks out of the year or less than 10% of the time it’s been rented. You cannot initially use the 1031 Exchange for your primary residence. However, there is a revenue ruling that states if you hold the property as an investment for two years or more, you will not be challenged if you convert it to your personal residence.

Keep in mind that the 1031 Exchange defers taxes - the taxes don’t just disappear. If you do convert a property to your primary residence, you could take a primary residence exclusion down the road.

There are a lot of nuances to this process and Greg has helped many of our clients. You can reach him at Greg.Burns@ipx1031.com or 626-233-2773. Greg and I have discussed setting up some kind of investor seminar for our clients as well. Let us know if you are interested and, if enough people email us back, we will set something up. We look forward to hearing from you!