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1031 Exchange Rules 2019 (REVEALED!) - YouTube
Channel: Toby Mathis Esq. | Tax & Asset Protection
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(uplifting music)
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- [Toby Mathis] What is the best way
to utilize a 1031 exchange?
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So, Jeff, do you want to
play with the 1031 exchange
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or do you want me to keep going?
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- [Jeff] No, you're doing great.
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I'm just listening here, learning, and--
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- [Toby] Oh, stop it.
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(laughter)
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He's still mad about his mom's tractor.
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(laughs)
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Your mom drives a tractor.
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I was just thinking back
to the elementary school.
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Everybody would always say,
"Your mom wears combat boots."
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- [Jeff] Let me say--
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- [Toby] Really, mm hm.
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- [Jeff] About 1031,
the best way to utilize
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a 1031 exchange is first,
have a qualified intermediary,
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and second, don't touch any of the cash.
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Don't touch any of the
proceeds from the sale of your,
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what we call the property given up,
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the relinquished property.
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- [Toby] Now I'm gonna make this.
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It's real estate only.
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There are no 1031 exchanges for anything.
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So the best way to utilize a 1031 exchange
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is to sell real estate
and buy real estate.
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You cannot use it for anything else.
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- [Jeff] Yeah, that's new
in 2018, it used to be,
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you traded in a car from a
business, it was a 1031 exchange.
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- [Toby] You'd be able to do inventory
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and all sorts of fun stuff.
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Now, it's just--
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- [Jeff] It's all gone.
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- [Toby] So, what it really comes down to,
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if you sell real estate
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and buy real estate,
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and this could actually
go in reverse order.
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You could actually call a reverse exchange
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where you buy real
estate and then sell it,
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but it has to be of greater than or equal,
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greater than or equal value.
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So if you sell a million
dollars of real estate,
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you gotta buy a million
dollars of real estate.
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Even if it has debt on it.
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You gotta replace that debt, or you gotta
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come to the table wish come cash.
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- [Jeff] Correct.
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- [Toby] But what happens is,
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the basis of the previous properties
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roll into the new property or properties.
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And you could sell 20
properties and buy one,
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you could sell one property and buy 20,
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it doesn't matter, as
long as it's real estate.
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You could buy land, you could go
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and buy apartment buildings,
single families, combination,
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commercial, residential,
it doesn't matter,
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as long as it's real estate.
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So if somebody says, if I
were to attend a two-day
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real estate educational networking event,
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where I have to fly to the
event, how many hours count?
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So if she says it's gonna take 48 hours
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to get there and back and do it,
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are they able to take every hour,
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or are they taking eight hours a day?
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Do you know the answer to that one?
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- [Jeff] I would think it would just be
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their travel and the education time.
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I don't think you could
count all those hours.
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- [Toby] Yup.
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You're gonna be, it's just
gonna be your actual hours.
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So if you're actual time spent traveling,
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'cause the IRS doesn't get to tell you,
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"You have to go the fastest route."
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So you can actually take a cruise ship
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to go to an event, if you want to.
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As long as it's travel.
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There's actually rules on that,
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it's twice the federal per diem
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is the maximum amount per day.
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So if federal maximum per
diem amount is 400 bucks,
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then you can write off $800 a day
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taking a cruise ship to go to a meeting.
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Not having it be a cruise ship
and going to a place to go,
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you have to use it as transportation.
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- [Jeff] So Joshua asked,
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"I thought we can take the boot,"
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meaning the cash out of the 1031 exchange.
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You can always take the boot,
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but you have to remember that
every dollar of boot taken
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creates a dollar of taxable gain.
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- [Toby] Yup, so you have to pay tax--
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- [Jeff] Up to your
total gain on the sale.
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- [Toby] Yup, so you don't wanna do who.
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- [Jeff] Yeah you just have to be willing.
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You have to know that ahead of time,
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that if you take cash out of the steal,
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it's probably gonna cost you some tax.
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- [Toby] Yup.
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Or you just wait.
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So you do your deal, you buy something
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and then you're gonna refile
it somewhere down the road.
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Then they don't really
look at any of that stuff.
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I suppose they could always try to argue
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that somehow that was taxable, but--
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- [Jeff] But I think they've
been pretty successful
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at taking, at doing the
loan after the sale.
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- [Toby] No, most of the
facilitators I work with,
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it's always like a, pigs get
fat, hogs get slaughtered.
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Give yourself some time.
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Give yourself some time
and then take it out.
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They're not in the habit of doing that.
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If you're taking the money at closing,
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then they will have an issue with it.
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And your facilitators probably
are gonna be looking at it,
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going, "Hey, that's taxable."
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- [Jeff] Yup, from what I've seen,
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they recommend that you do not
refinance before your sell.
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You refinance after you purchase
your replacement property.
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- [Toby] Yup.
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Then someone says, "How
do you use the Delaware
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"statutory trust to avoid the timelines?"
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You're not using it to
avoid the timelines,
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you're using it to meet the timelines.
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So if you sell and you have
180 days to go close the close.
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So you have 45 days to
identify replacement property,
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and then you have to
close within 180 days,
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and you're worried about making that.
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'Cause you're in commercial
or something, you just sold.
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You're just, "Oh, there's
no way I'm gonna be able
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"to identify and close."
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You use a Delaware statutory
trust and it meets the test,
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and then you're gonna
do another 1031 exchange
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from the Delaware statutory
trust to the new property.
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So if you're really
worried about the timeline,
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then do a reverse exchange
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where you use the facilitator
to acquire the property
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that you're going to sell and go into.
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And again, you still have 180 days,
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so you still gotta get the (mumbles).
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- [Jeff] Now I know somebody's gotta ask,
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"How long do you have to hold a property
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"before you do another 1031?"
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We've researched this,
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and the courts are all over
the place on this question.
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- [Toby] That's the property.
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- [Jeff] Yeah, we've seen
it from a week or days, to,
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they've disqualified them years
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after they purchased the second property.
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So it gets a little crazy,
there is absolutely nothing
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that tells us what the real answer is.
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- [Toby] It's kinda weird.
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I would think that as long
as it's investment property,
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you can do multiple exchanges
into investment property.
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I've actually seen it where
we did a shopping center
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that went into multiple ticks,
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and then they ended up
selling multiple ticks to get
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to the properties that they
actually wanted to acquire.
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They were parking it for a while.
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And those lawyers all looked and said,
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"Hey, there's no hard and fast timeline."
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They all said,
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"Six months is the keep yourself
from getting in trouble."
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- [Jeff] And that's pretty
much what I've seen,
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is that's recommended, so.
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- [Toby] Here's the thing,
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if you're gonna do a 1031 exchange,
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get a good intermediary.
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If you need a good intermediary, ask me.
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I have a couple that I could send
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over your way that are good.
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They're all over the place, by the way.
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Like, I rarely use somebody that's
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in your neck of the woods.
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It's probably gonna be
somebody that I think is good,
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and like, Shauna Rose is
one that I use out of Idaho.
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1031 exchange gal.
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All I know, is that whenever
I ask her a question,
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she tries to answer it the best she can
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and she doesn't play games.
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And I've never had an issue, my clients
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have never had an issue.
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And she's out there, and I
don't even know where she's at.
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I just know that she's good.
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So, there's other people
that use 1031 exchanges.
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Find someone that has worked with folks,
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and no-nonsense, get it done.
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- [Jeff] Whoever you marry is
gonna keep you out of trouble.
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- [Toby] Right.
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Somebody says, "What about a real estate
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"that you purchase to fix and flip
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"and you sell the property to the buyer?"
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No, that cannot be 1031 exchanged.
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That is dealer property.
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And yeah, you get taxed on the income.
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The reason, Kathy, is that
there's two types of income,
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there's investment income
and there's ordinary income
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from development dealer activities.
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And when you buy and
sell, you're a car lot.
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You're not an investor.
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You're buying cars to put
on your car lot to sell.
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(upbeat music)
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