Garrett Sutton Interview with Gary Gorman

Introduction: The Entrepreneur Magazine Legal Show with Garrett Sutton, Live Tuesdays from 10-11am Pacific time: 888-327-0061; The IRS allows you to sell real estate without paying taxes. Using a special section of the IRS code, you can exchange properties tax free. Introduction: Gary Gorman, author of, "Exchanging UP! How to build a real estate investing empire without paying taxes using 1031 exchanges." What does a 1031 exchange do? Rolling gain from the Old Property over to the new. What do I have to do to get tax free treatment? The 6 things: 1. Both the Old Property you're selling and the New Property you're buying have to be held for investment. Can you use your personal residence for this? Investment property; can I buy any other kind of investment property?

Is 1031 exchange a law? Is it an IRS code section? This is an IRS code section that allows these tax-saving strategies. Element 2: From the day you close your Old Property, you have 45 days to come up with a list of properties you want to buy. How many properties should I put on that list? Rule 3: Again, from the day of closing, you have 180 days in which to close the purchase of whatever you're going to buy, and whatever you buy as your replacement properties has to be on that 45 day list. What happens if you don't get the properties together by 45 days? Or you don't close within 180 days? What are the consequences? Are the 45 and 180 days cast in concrete? Can I get an extension? Is this crucial? 4th Element: You cannot touch the money in between the sale of your Old Property and the purchase of your New Property. Is this the law? Do I have to have an independent 3rd party? What is a "Qualified Intermediary?" Does the QI hold my money? Do I have to be really careful about that? Why? How expensive it is to arrange for an Intermediary? Do complicated transactions with lots of pieces and lots of partners cost more? Is this a good deal?

What's the cost of the gain vs. the cost of the Intermediary? The 5th Element: However you hold title to your Old Property, is how you have to take title to your New Property. What about a Corporation? Does it have to be the same taxpayer? Same tax ID number? What if you hold Property in an LLC? What about Corporations? Partnerships? What about Trusts? The 6th element: In order to pay zero tax, no tax, you have to: 1. buy equal-or-up, OR 2. if you bought it for less, you have to pay tax on the buy-down.

Gary Gorman, author of, "Exchanging UP! How to build a real estate investing empire without paying taxes using 1031 exchanges." Running through the 6 elements: 1. both the Old Property you're selling and the New Property you're buying have to be held for investment. 2. From the day you close the sale of your Old Property you have to provide a list of typically 3 properties or less that you might want to buy as your replacement property. 3. Again from the day of closing you have exactly 180 days or less in which to close the purchase of whatever you're going to buy, and whatever you buy has to be on that 45 day list. Do the 45 days and the 180 days run concurrently? Are there any extensions? Are these calendar days? What if it falls on a weekend or a holiday? 4. You cannot touch the money in between the sale of your Old Property and the purchase of your New. Do I have to use the services of a Qualified Intermediary? 5. However you hold title to the Old Property is how you have to take title to the New. 6. In order to pay zero tax, you have to buy equal-or-up, and you have to roll all of the cash from the Old Property over to the new purchase. Are there traps for the unwary? Question: Exchanging to a lease-hold for a restaurant: another exchange company said I can do a lease for 30-years or more Æ can I still do that if I have an interest in that entity, an LP? Can I still do that?

5. Answer: Is The LP going to hold the lease? Or is it going to sublease from you? The PAC ID number of the owner of the property that you're selling has to be the same as the tax ID number of the property you're buying. What can he do? Are leases of 30 years or more considered real estate? Info about real estate and leases. Should he make the term of the lease exactly identical? What does that mean? Why? Should he buy low? Or is he just buying his interest to increase the rate to them? Tax Court cases on the books: If your sublease exactly mirrors the lease, how does the IRS see it? If your sublease exactly mirrors your lease then the IRS will consider the tenant, the LP to be the actual owner which violates the rule.

How can you take cash out of an exchange? Remember rule #4. According to the IRS how long to I have to wait after I purchase the New Property before I can pull the money out? Don't touch the money on the sale of the Old Property until you buy the New Property, and then take it. The Separate Accounts issue. What are the concerns? Are intermediaries licensed by any of The States? Can a convicted felon be an intermediary? Intermediaries hold your money in one of 2 ways: What percentage of them hold the money in a commingled account? Intermediary defalcations: Commingled Accounts. Make sure your money is in a separate account.