Tulsa commercial Real Estate Experts: Can You Give Me A Sample of the Savings In A 1031 Exchange?

Tulsa commercial Real Estate Experts: Can You Give Me A Sample of the Savings In A 1031 Exchange?
by U.S. SBA Entrepreneur of the Year & Cofounder of Fears & Clark Tulsa Commercial Real Estate Group - Clay Clark

The savings that one can realize by simply deciding to take advantage of the 1031 Exchange Tax Deferral Program are significant. To fully demonstrate how real these savings are, our elite team of commercial real estate experts has put together the following easy to understand example:

A man by the name of Navin Johnson decides to sell his office / wharehouse property located near 51st & Sheridan in Tulsa, Oklahoma. The Tulsa commercial real estate that he is selling has been owned by his company for 12 years of glory. The property was originally purchased for an amazingly low amount of $50,000 from an auction. The person he bought the property from was apparently a goat herder who struggled to understand the concept of maintaining his property. When Navin bought his property it was looking pretty rough. The windows were all broken, their were three homeless guys living in the property and the floor smelled like it was the cat pee headquarters of America. However, something about this property appealed to the young Navin Johnson. He had heard Warren Buffett once say, "Be greedy when the market is fearful and be fearful when the market is greedy." Thus he thought, "I think everybody is afraid of this property, so it probably makes sense to buy it. It can't be worth less than it is now."

Navin purchased the property and fixed it up overtime. Today the property is now worth an outstanding $500,000. Thus Navin has decided to sell this property. His incredible real estate broker is a guy by the name of Braxton Fears. Not only does Braxton Fears have the looks of a young Kennedy, but he knows his real estate. He recommends that Navin goes after the obtainment of a Qualified Intermediary for the purposes of orchestrating a tax deferred exchange. By deferring the capital gains taxes owed on the property, Navin will be able to keep more of his hard earned capital working for him. Braxton goes out and finds Navin a property that is actually worth $2,500,000 to act his replacement property. Because Navin was able to use the 1031 Exchange Program to his advantage he gets out of paying 15% of his profits to the government. Thus Navin has just saved himself nearly $75,000. This makes Navin feel good inside.

Because Braxton is a genius and because Navin had the capital he was able to purchase this new property by putting 25% down as the initial payment. This new building produces him an income nearly $15,000 a month and it provides his business with a new home. All is well for Navin and he feels like a champion because his Qualified Intermediary did his job. Now behind the scenes of this simple transaction was a virtual mind-field of what-ifs and potential pitfalls. For instance Navin and his team had to correctly establish their "intent." You see the actual test as to whether an exchange will be classified as made by the dealer or alternatively as an investor, revolves specifically around Navin's intent at the time of the exchange. If his intent was to keep the cash to buy himself a sweet new Z4 BMW then that would be very different from his intent to buy another property of a greater or equal value from the very beginning.

It was very important for this "super qualified" Qualified Intermediary to establish the intent early. In some cases a taxpayer will change his intent during the perioud that he holds the property just prior to the exchange. Determining the taxpayer's intent is a more of a question of fact that a question of opinion. Thus, the facts of the matter must be documented to the fullest extent possible. It is very important that the government knows that your intent was established early and that is was well documented. Wavering on your intent is not a good thing for an investor to do.

For more information about all things related to a 1031 Exchange read all of the articles on the Fears & Clark website. At Fears & Clark we have more content about this 1031 Exchange Program than we should. And remember by reader friend. Always contact a tax professional or a tax advisor before attempting to participate in a 1031 Exchange Program.

For more information about the 1031 exchange program, purchasing Tulsa commercial real estate, Tulsa commercial real estate, Tulsa commercial office buildings, Tulsa office buildings, Tulsa real estate, Tulsa office space, Tulsa commercial space available and Tulsa commercial investment properties please feel free to contact our expert team of commercial real estate professionals today at 918-481-2080. Or you can visit us online at www.FearsClark.com.