1031 exchanges can be confusing because of the different moving parts. There are firm tax guidelines, specific timeframes, and stipulations on the types of properties investors can buy. This is why it is so important to have sound legal and tax advice to ensure you do not run into any complications. Our guest today, Michael Brady, is a 1031 expert. As a Vice President of Madison 1031, Michael’s role includes consulting clients and their advisors on regulations affecting 1031 exchanges. Along with this, Michael has also published several articles on tax and legal issues and is the primary author of the 1031 Zone blog. In this episode, we learn more about 1031 exchanges, from what happens when a partner wants to cash out and others want to exchange to how ‘drop and swops’ work. We also learn that it’s not possible to do a 1031 exchange and get involved in syndication. Michael walks us through the TIC structure which serves as a way of getting around this. Michael also sheds light on some 1031 exchange alternatives, the importance of getting your ducks in a row before a 1031, and why it’s better to pay taxes than to buy a bad property. This information was a great resource for us, and we know it will help you too. Be sure to tune in today!
Key Points From This Episode:
- Learn more about Michael’s background from his legal career to VP at Madison 1031.
- What happens if your partners want to cash out but you want to stay and do a 1031.
- Find out what a ‘drop and swop’ transaction is and how it’s used to separate partners.
- Why it’s not possible to do a 1031 and join a syndicate or become an LP in a large investment.
- An overview of a TIC structure and how it can help 1031 investors in syndications.
- The operating agreement should make provision for partner separation and exchanges.
- Find out when it’s possible to buy out partners in order to do a 1031 exchange
- Why 1031 exchanges do not affect your ability to do a cost segregation analysis.
- Alternatives to 1031s: The Delaware Statutory Trust and qualified opportunity zones.
- Some important closing points Michael wants us to remember about 1031 exchanges.
- Final four questions with Michael: Tools he can’t live without, his biggest mistake and more.
Tweetables:
“When we do 1031 exchanges, the taxable entity that sells the relinquished property has to be the same taxable entity that buys a preplacement property.” — Michael Brady [0:03:04]
“You really need to have good tax advice and good legal advice when doing these types of transactions.” — Michael Brady [0:08:17]
Links Mentioned in Today’s Episode:
APT Capital Group – YouTube Channel
Passive Income Through Multifamily Real Estate Facebook Group
