About the Tax Deferred Exchange and How I Hate Them AND the Reasons Why I Do

As we all know there are many terrific ways to use an exchange and defer your capital gains assessment but that is what you hear from individuals trying to sell you something. Make certain you are aware that you have to follow these important steps in completing a successful exchange:

a) Give yourself plenty of time to identify a replacement property.

The IRS regulations are generally 45 days to identify a replacement property and 180 days to close on the property. Do Not Sell with a short identification window, especially if you have not located a replacement.

b) Do not inform sellers you need to complete an exchange.

This one still confounds me. I get calls all the time from other brokers or buyers saying "I have to find something to complete and exchange" Let me ask you a question. How much negotiating power do you have if the other individual across the table knows your exchange countdown is ticking and if you don't buy a property quickly you will pay a large figure to Uncle Sam? Not a good idea. There are strategies to employ to make sure it is in the offer without informing the seller. This is imperative. You will literally lose thousands of dollars if this is not done properly.

c) Use possession dates wisely.

Make sure you put the possession dates out as long as possible on the project you are relinquishing to complete an exchange. This gives you quite a bit more time to locate that replacement. You may still want to consider some kind of option agreement vs. a straight purchase agreement.

d) Have good assistance and counsel.

Whatever you do make sure all parts of your team be familiar with precisely what you want and how to get it for you. This includes your attorney, CPA, Realtor, etc. Do not have Alice having open houses on Sunday trying to help you complete an exchange on Monday, you will lose.

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