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Misconceptions About Exchanging Q: "In order to do an exchange, do I have to find someone who wants to swap properties?" A: Absolutely not! Although an exchange can be done in this fashion, the likelihood of finding someone who has property that you want and who wants the property that you currently own is really difficult, if not impossible. The properties must be of similar value and debt structure making the task even more difficult. When you execute an exchange using the intermediary method, the process is as easy as selling your current property to the highest bidder and acquiring your replacement property from the open market. Q: "I want to do an exchange and I have owned a duplex for 15 years. I do not want to own another duplex. Do I have to acquire like-kind property?" A: The definition of "like-kind" for tax-deferred exchange purposes is "any real property held for investment used in a trade or business." Therefore, you could sell the duplex and buy a small apartment building or sell raw land and buy five rental houses. You could even sell three rental houses and buy a small office building. The definition of "like-kind" does not really limit your real estate options. Q: "When completing an exchange, do I have to swap deeds simultaneously between the relinquished and replacement properties?" A: In prior years this was true, however, the Starker1 ruling established that exchanges could be done on a delayed basis. This allows a great deal of flexibility when doing an exchange. Remember, the exchangor has 45 days to identify the new replacement property and 180 days to close. Q: "Are exchanges difficult and costly?" A: If people really understood just how easy and inexpensive tax-deferred exchanges are to execute, it would substantially increase the number of exchanges done each year. If you use the intermediary method of exchanging, you simply sell the investment property you currently own and acquire another replacement property. The intermediary coordinates most of the legal paperwork details. You still need an attorney/title company to close the transactions. The added cost for intermediary services typically is in the $700 - $1,500 range. Exchanging
can be more difficult if you are not using the intermediary method.
If you decide to use the intermediary method, it is very important
to deal with a seasoned professional who fully understands the proper
procedures that must be followed.
It is extremely important that when executing a tax-deferred exchange transaction that you use the services of a qualified professional. You will incur an additional nominal expense, but a professional will make exchanging as easy as selling and buying property in the open marketplace. Remember, for the smart investor, tax-deferred exchanging is the most important investment tool for creating wealth in real estate. Our Services | Our Commitment | Basic Exchange Rules | Exchange Benefits | Contact Us |
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