America’s Land Auctioneer
Captivate and celebrate the dynamics of rural America, American Agriculture and inspire and teach others how to live a bold and abundant life in rural America. Background: The intrigue, endless opportunities, and romance of rural life in America have never been more on the minds of Americans. The recent pandemic and civil unrest have Americans of all ages earning for a more peaceful, less hectic life. Even billionaire Bill Gates is now the largest crop landowner in America. As many Americans look for peaceful refuge in the rolling hills and wheat fields they are faced with a richness of opportunities. But where do you begin to look? This show will highlight and feature endless opportunities in every state. What is it that is so unique about rural America, the land and what it produces? How can I live that life? The American Land Auctioneer will tell stories and weave into those stories a place for you to dream, live and enjoy the abundance of all that rural America has to offer.
America’s Land Auctioneer
Unlocking 1031 Tax Exchanges: Expert Insights with Larry O'Callaghan
Unlock the secrets of tax-deferral magic with our special guest, Larry O'Callaghan, as we dissect the intricacies of 1031 tax exchanges. Larry, a seasoned real estate expert from Pfeiffer's Auction Realty, demystifies the process, guiding you through how to defer taxes when selling business-purpose real estate. Whether you're swapping farmland for a commercial property or diving into reverse exchanges, Larry explains why it's crucial to consult with CPAs and attorneys for a seamless experience.
Understanding the rules is key, and that's why we walk you through the vital identification regulations, including the three-property, 95%, and 200% rules. Discover the role of a qualified intermediary in preventing taxable mishaps, especially in complex transactions like farmland exchanges. We also untangle the web of reverse 1031 exchanges, shedding light on setting up straw man entities to acquire replacement properties beforehand, all with Larry's seasoned insights.
Lastly, we explore the financial landscape of basis, equity, and exchange alternatives like the Delaware Statutory Trust. By clarifying how basis affects capital gains and the necessity of reinvesting both equity and debt, we aim to equip you with knowledge that could be financially transformative. We also touch on 1033 exchanges for eminent domain-affected properties, emphasizing the flexibility they offer. With Larry’s expertise, you'll come away with a comprehensive understanding of these powerful tax strategies, ready to optimize your financial journey.
Follow at www.americalandauctioneer.com and on Instagram & Facebook
Contact the team at Pifer's
Welcome to America's Land Auctioneer. I'm Steve Link, broker for Piper's Auction and Realty. We're glad you could join us today. Don't forget you can catch up on all our past episodes by visiting Piper's website at wwwpifferscom and clicking on America's Land Auctioneer to access our podcast library on Apple and Spotify. Before we get started, though, I want to make sure we thank our sponsor. We don't have to go far for our sponsor. It's Pfeiffer's Auction Realty and Pfeiffer's Land Management. Pfeiffer's team of land and equipment auctioneers, real estate agents and land managers will give you a free consultation on selling your land and equipment and managing your farmland. Nobody does it better than the team at Pfeiffer's when it comes to selling your land and equipment or managing your farmland. All right, joining us today is Larry O'Callaghan. He's a real estate agent for Pfeiffer's Auction Realty. Larry has decades decades of experience in real estate and financial services, including serving as the first chairman of Sterling Multifamily Trust. His depth of understanding of 1031 exchanges and investment strategies has helped countless clients navigate complex real estate transaction.
Speaker 3:Larry, welcome to the show. Well, thank you for that marvelous introduction, Steve.
Speaker 2:I wasn't quite thinking I was that great.
Speaker 3:but Well, larry, how long have we known each other 2005.
Speaker 2:You remember the year? Wow, so I was going to say 15 years, but it was before. It was, even before that, old as dirt. Yeah, we we've become good friends and we've had so many different connections that, uh, that weren't work related, um, but it it. It started, uh, it started off as a as a work relationship and, and it's been. It's been awesome to to get to know you and your family and and that's the best part about it you as your family. You know that right.
Speaker 3:Uh yeah, the family's better than I. Yes, they are.
Speaker 2:Well, Larry, we are going to dive into 1031 tax exchanges and we really want to start with the basics. I've been asked a lot of questions over the last couple weeks with all the transactions that we've been doing at Pifers and a lot of the basic questions, and I forget. We've been doing this for 20-some years, but other people haven't. And when they are selling a big asset, one of the questions that they ask is how they're going to handle the tax ramifications of that sale. So a lot of people talk about 1031 exchanges and so for our listeners, new to the concept, can you explain what a 1031 tax exchange is?
Speaker 3:Sure, give it a whirl that number. By the way, the 1031 is nothing more than a IRS code number. It was a Starker exchange originally and then they kind of plugged it into the IRS code under that number. So of course it took off with that over the course of the years. 1031 tax deferred exchange. So of course it took off with that over the course of the years. 1031 tax deferred exchange Been around since the 60s, had minor changes and improvements and modifications over that time frame.
Speaker 3:But you sell a piece of land using that. Of course we're real estate people selling a piece of land and then you end up having a sale and at the time of the sale there's no tax consequence. The tax consequence is going to occur. At the time of the sale. There's no tax consequence. The tax consequence is going to occur at the time of the closing and with Pfeiffer's that's typically 45 days after the sale. So there are windows of opportunity and time there that people can contact their CPA, their real estate attorney or myself or several other agents at Pfeiffer's that could give them direction and help. In regards to the 1031.
Speaker 2:Have you read the IRS tax codes? Yeah, cover to cover, cover to cover. Absolutely not so. 1031, like you said, is the number that talks about how they're going to treat that taxable gain and opportunities to exchange it, that taxable gain and opportunities to exchange it?
Speaker 3:What types of property qualify for a 1031 tax exchange? That's a great question. It's interesting in that a lot of people assume if I sell a quarter of cropland I got to buy another piece of cropland, and that is totally not the case. It's business purpose use property. So the land could be sold for ranch land, of course, but it could be a fourplex apartment house, it could be a gas station, it could be any business building that you could rent or lease out. All of those are eligible items. A lot of our people are retirees and as such, by example, you could buy a second or third property in Arizona, as an example. You just need to rent it out for at least two years, but that would then qualify, of course, its business purpose use for that period of time and then, following the guidelines on it, then you theoretically could then convert it into your residence, be it primary or secondary, and that could then help mitigate taxes, just as a side note.
Speaker 2:Steve, so you dove into what the like-kind exchange part of the 1031 is. So some of the properties that qualify, but selling it's really any non-primary resident type property really qualifies for tax exchange. Is that correct, I mean?
Speaker 3:Not a primary. Not a primary it would have to be a primary residence to where you're using it. That has a separate tax code to it, a 251 tax code, where you can shelter up to $500,000 for two spouses.
Speaker 2:Yep, okay. So the like-kind exchange when they named that, I wish they went to use that term because it doesn't always have to be exactly like-kind. And so you can sell farmland and buy an apartment building. You can sell farmland and buy, like you said, a rental property. You can sell a rental property and buy farmland or industrial land or things like that. So the like-kind you hear that term and it's not exactly right, but they want you to if it's the overall general term the investment property into another investment property.
Speaker 3:That would be a good example, Steve. Yeah, well said.
Speaker 2:Yep. So what motivates people to do this? I mean, it seems like a lot of work.
Speaker 3:Over my experience now and, like you said, these 20 years, it's quite interesting, generally speaking, and I'll say, from zero on the left and 180 degrees on the right. So extreme left, extreme right is that hey, the government needs tax money too, so yeah, it's my turn, so I'm going to give it to them. Or the other guy says there is absolutely no, so I'm going to give it to him. Or the other guy says there is absolutely no way I'm going to give him any extra dollar unless I absolutely have to. And anywhere is then in between, then follows the situation to where I would get involved with it. So basically, try to tell them, provide them the information and then see where they fall within that spectrum and choices to be made.
Speaker 2:Because really, you know, every situation is different but they can be subject to anywhere from, you know, 5% tax taxes all the way up to, in some cases, if you add in the state tax liability, it can be up 30% or plus. When you add on all of this stuff, that can potentially happen depending on what your circumstances are. But a general rule of thumb is potentially a 25% capital gains tax liability and that can be significant. But you're right. So I have people, when I am sitting across from them and we are leading up to the closing of their property and deciding what they want to do, they may be willing to pay that capital gains tax because they're worried that the tax codes might change. And it really amplifies and happens every four years when we have an election and depending on who gets elected is what people assume may happen with those tax codes.
Speaker 3:Yeah, you're 100% correct, steve. You've been a good listener to all of these clients over the years and the different things that have occurred. And people get concerned about that and it's even ongoing during the course of the four years. But obviously when you have an administrative change then usually they have a thought process of what they would like to see and present to Congress what they'd like to see occur for tax law changes. And during my tenure in doing this, it's just an ongoing rolling ball down the hill. It gets brought up, gets shot hill. It gets brought up, gets shot down, gets brought up, gets modified, gets brought up, modifications occur. So there has changes that's been occurred over the course of time.
Speaker 3:One of the things that I end up seeing is that from a tax preparer or an advisory standpoint in the tax side of it, from those individuals this is a generic term, just like everything else. There's always those individuals. But from a generic standpoint, it's pay the tax, forget about it, you made profits on it, your taxes are due, move on to different and better things. Don't let the government have a handhold over you. Who knows what they're going to do down the road. And as a generic statement, that works on a lot of individuals, especially if they're in retirement age. Larry, I don't need more frustration or more potential hassle or my kids needing more potential problems. So you see that occur.
Speaker 2:Right, yeah, okay. So when we are talking about that, a critical thing that everybody talks about on a 1031 are timeframes, because there are certain steps that have to be done on a 1031 tax exchange to qualify or not create a tax liability. So can you walk us through the create a tax liability. So can you walk us through the? You know everybody, a lot of people that are familiar with this, know the 45-day rule and the 180-day timeframe. Can you walk us through that a little bit?
Speaker 3:And your numbers are correct and those are inked in the IRS code. So when Pifers gets a listing, nothing occurs. When Pifers has an auction or a listing sale, nothing occur. The purchase agreement is generated and then they establish a closing date. That closing date is when the clock on this 45-day starts. So at the time of the closing, if there has been no paperwork established saying that I would like to do a tax deferred exchange on that closing document, you're going to have a line item in there that says John Doe receives his $450,000 and that becomes a taxable event and if he does the deferral then it would end up going to the 45-day window of identification.
Speaker 2:All right, Larry, this is good stuff. I want to come back to this after we hear a few messages and get into the next segment. So, Larry, are you going to stick around with us? I will All right, but before we close out here our first segment, I want to to thank our sponsors at Piper's Auction and Realty and Piper's Land Management. Piper's team of land and equipment auctioneers, real estate and land managers will give you a free consultation on selling your land and equipment and your farmland. Nobody does it better than the team at Piper's.
Speaker 1:Come back after these messages $50,000, $50,000, where's $1,750 here now Do some way. First Come back after these messages. Welcome to.
Speaker 2:America's Land Auctioneer. I'm Steve Link, broker for Piper's Auction and Realty. We're glad you could join us today, don't forget. You can catch up on all our past episodes by visiting Piper's website at piperscom and clicking on America's Land Auctioneer to access your podcast library on Apple and Spotify. And I want to thank our sponsors, piper's Auction and Realty and Land Management.
Speaker 2:Piper's team of land and equipment auctioneers, real estate agents and land managers will give you a free consultation on selling your land and equipment or managing your farmland. Nobody does it better than the team at Pifers. All right, we still have Larry O'Callaghan here with Pifers and we are talking about 1031 tax exchange. In that last segment, we talked about kind of the basics and stuff, and we were just getting into some of the timeframes that you need to follow if you choose to do a 1031 tax exchange.
Speaker 2:The 45 days is the identification period, meaning that you have, from the date you close to 45 days to identify your replacement property and there's some rules with that as well too and then you have 180 days from the date you close to close on one of those properties you identified.
Speaker 2:And what I talk to with clients is if you are worried about identification, finding a property, make sure that you're talking with your real estate professionals and because there's a chance that maybe you can delay the closing of your real estate to coincide with, maybe finding your replacement property and with us selling farmland. It's really the window to do. The closing is, at certain times of year is pretty wide, you know, especially when we are selling in the winter months, because you know spring might be months away, and so you could add another 45, 60, 65 days on your closing period to have more time to identify your replacement property. Conversely, if well, even you have to look at that 180 days, because if your replacement property isn't going to be available for 180 days, you may want to make sure that you push your closing back so you can make sure you can close on that property in the 180 days. And so those 45 days and 180 days are critical for you to make sure you're following the rules of the 1031.
Speaker 3:That's correct, steve, and IRS is infinite and there is no leeway on that, yep. Relative to that 45-day period, also, under the identification rules, the IRS has given us what they call multiple rules that they can go by. There's a 95% rule, there's a 200% rule and there's a three-property rule. Fortunately, at Pifers's we probably without exception have used the three property rule over these 20 years and it's the most common. But they do have the others in there for unique situations, for individuals. So, by example, under that three property rule, using again farmland as the example, the gentleman wants to sell property and buy other property and he says well. And he says, well, you guys are going to have an auction here. And then I saw there's a listing here. I'm not sure which one I'm going to get. Can I mark them both down Absolutely? Do you have to close on them? No, you don't. So then what happens if you don't have? You don't.
Speaker 3:So then what happens if you don't have any closings on the property that you've identified in that 45-day period of time? If, by example, you put none down at the end of the 45-day period, the person holding your money which is called a qualified intermediary, by the way, they just return your money. It's a taxable event. Let's say you had a property listed there and, for whatever the reason was, you were unable to close on it in that 180-day period of time. The same scenario you identified unable to close. 181st day the qualified intermediary issues you a check for the money back. It's a taxable event in the year of the receiving of the monies. So those are a little bit of the inside pieces of it, steve.
Speaker 2:Right, right. So yeah, the qualified intermediary. Let's talk about that a little bit. So when they set this up, they wanted a third party person to handle this, because once you take constructive receipt of that property or of that of the monies, um from that sale, then you it's a taxable event on a on a standard 1030, 1031. I also um later on here I want to talk about 1033 and what that is all about and uh, but on the standard 1031 tax exchange, once you get constructive receipt from the monies, then it is a taxable event and so that's why it's really important to have a 1031 intermediary firm or company or person in line to handle this and that has that people that are the specializer understand that has um, there's been, there's more, there's more of those available to us in the industry Um, the local titled companies and and such have become um a really good asset in that and have have have know the rules and follow the rules and become really good intermediaries.
Speaker 2:There's companies out there that that's all they do is their intermediary companies for 1031. And they're phenomenal. They do an excellent job on handling it. But that intermediary and making sure that you talk to your real estate professional and finding that intermediary is important. Conversely, you're not supposed to use your own personal accountant or attorney or real estate agent and those they're supposed to be a little bit more arm length than that, and so that's where I see the industry going.
Speaker 3:Well, and it's been there too, steve, for quite a period of time. But, yes, well, it's been there too, steve, for quite a period of time. But yes, they're quite definitive on that rules that you just got done processing through there.
Speaker 2:Yep. So why would somebody, if they are identifying? I'm going to answer my own question. But if somebody identifies five, six, seven properties, why would they even do that? Identifies you know five, six, seven properties, why would they even do that? Well, one of the reasons that I see is some of these sales have gotten so big that the exchange property, the exchange property, isn't meeting 100% of their sale, and so they want to identify enough properties to cover 100% of them. And so, for instance, if they sold a couple quarters of land and they had a few million dollars and they went out and bought rental houses in a community and those rental houses were smaller and they weren't already in a portfolio, then they would have to identify all of those and they'd have to make sure that they close 95% of those to qualify through that process. And again, that's where you really want to work with your professionals so that you follow that process.
Speaker 3:That's a good example, steve, with these higher prices that we're receiving. And if it's a large landowner, then that is distinctly a situation that can come to place, and then you wouldn't probably use then the three property rule. You would go to one of the other rules, yep, but it would make that eligible to do just that.
Speaker 2:Yep, okay, what if I found my replacement property and they wanted to close right away and I haven't sold my relinquished property yet? What do we do?
Speaker 3:Well, you need to rush right over to your real estate guy, because you could create a problem. How to not have the problem is that you would do what's called a reverse a reverse 1031. Just as your example was, you're putting the cart before the horse and going that direction. So in order to do that, you need to have what's called a straw man entity that buys the property, not yourself. So if you buy the property, well, you're straight 1031. If you have an entity so what's an entity? It would be like an LLC, it's a disinterested third party, and usually that's created by a title company or a law firm specifically for that purpose of doing reverse 1031s, and then you could accommodate that transaction.
Speaker 2:Yep. So the two ways to solve that problem, from what I see, is to either talk the seller into the property into delaying their closing, so you can go ahead and get yours, the relinquished property sold and closed prior and do a standard 1031 exchange, or you can do the reverse 1031 exchange, which is much more cumbersome, more expensive, but there's people that do that out there every day and so it can be done. So I don't want to talk people out of it, but if you can do the first option, that's going to be better. All right, as we close out this second segment, I don't know, we got a lot, a lot to cover yet, so hopefully everybody will stick around for the third and fourth segment. Here I want to thank our sponsors, piper's Auction and Realty and Piper's Land Management, piper. On selling your land and equipment or managing your farmland, nobody does it better than the team at Piper.
Speaker 1:All right, stick around for the third segment.
Speaker 2:Welcome back to America's Land Auctioneer. I'm Steve Link, broker for Piper's Auction Realty. We're glad you could join us today, Don't forget. You can catch up on all our past episodes by visiting Piper's that's Piper'scom and clicking on America's Land Auctioneer to access our podcast library on Apple and Spotify. Today's show is all about 1031 Tax Exchange. But before we get into that, I still want to thank our sponsors of Pifers Auction and Realty and Pifers Land Management. Pifers team of land and equipment auctioneers, real estate agents and land managers will give you a free consultation on selling your land and equipment or managing your farmland. Nobody does it better than the team at Pifers when it comes to selling your land and equipment or managing your farmland. All right, Larry, we last left off on reverse 1031s and standard 1031s, but let's talk a little bit about the money. Let's follow the money a little bit and talk about basis and if you have debt on that and how that all works. So, basis what's the definition of basis and why is that important in this transaction?
Speaker 3:It's important. It determines what your profits are, which are capital gains under the tax code. So what did I pay for the asset land? There are examples here. We'll just call it land. It could be a building. What did I pay for it? Because on your tax reporting you've got to report that.
Speaker 2:What did I pay for it or what was the value of it when I inherited it? That's the second way, yep, when it was transferred or gifted to you. You know gifting is different because then your basis goes back to when that gifter bought it. So this is a really complicated and complex subject. When it comes to basis, it's really easy, if you bought it within the last four or five, six years, to know what your settlement statement said and what the number was. But if this is something that was gifted to you and your parents received it back in the 50s or 60s or 30, I mean it is really tough to come up with a basis.
Speaker 2:Fortunately, in farmland those numbers are fairly small, and so you can make some assumptions and come up with something that's reasonable for the IRS. It's probably not going to be pretty for the tax calculation, but the basis, when it goes back that far, is going to be a pretty small, small number. And so I have a lot of people that, when I'm sitting across from them, they get basis and equity mixed up, and equity is if you have debt on that asset, is the difference between the sale price and the debt. Right, that's your equity, but that's not what you pay taxes on. You don't pay taxes on equity. You pay taxes on the difference between the sale price and the basis, and that's. You know. I'm probably giving it, simplifying it too much, but in the general sense, back of the napkin, that's what it is. The sale price minus your basis is your capital gains, and then you take your tax percent off of that, which is even a more complicated equation. But is that a fair, accurate statement?
Speaker 2:Very accurate, Steve. Yeah, you nailed it. Um and so when somebody has debt on their asset, um, they can't just exchange the equity, they have to exchange, um, all of it. Go through that a little bit for us, Larry.
Speaker 3:Well, and you, you got a good lead in there, steve, so thank you. Uh so, so you purchased land and you probably had debt on it. Now you're selling that land and you still have some of the debt on there. So if in fact, you want to do a 1031 qualified exchange, then IRS is very specific, saying that whatever your current amount of money you have equity and whatever your current amount of debt that might still be on there as a bank note, those dollar amounts have to convey into your acquired property, equal or greater. You can always go higher. If you choose to go lower on either one of them, equity or debt, then that portion of it then would be subject to profit or capital gain tax on that piece of it. But it can be done.
Speaker 2:So the simple I'm trying to simplify it. I got a million dollars and a million dollar asset that I'm selling and I had a $600,000 banknote on it and my basis was $200,000. I did really well on it, I'm really smart, right and my basis is $200,000. Well, I actually have an $800,000 capital gain. Larry, can I just exchange the, since I have 600, $600,000 of debt on it? I got $400,000 of equity. Can I just exchange the 400,000 and be good and be good to go?
Speaker 3:No, no. I mean, can you do that? Yeah, but IRS will have its way with you.
Speaker 2:You'd save a little bit of tax because you're, you know, you, you, your, your basis is 200,000 and he spent 400,000. So you would, uh, so you would, you would, you would, um, um, you would exchange, you know, $200,000 worth of gain into the next property, but, um, there's, there's 600,000 worth of gain into the next property, but there's $600,000 that you would pay a capital gains tax on. And if your goal is to shelter or defer defer is the right statement there defer all of it you have to spend all million dollars, both the equity and the debt, on that next property.
Speaker 3:That is correct. Yep, that is correct and, of course, with higher interest rates today, that can potentially create a little bit of a headache for the person looking to do that.
Speaker 2:Yep, okay, so we've talked about we kind of talked about those numbers and the debt and equity and the basis and trying to figure out what your basis, what your basis is, because that has, um, it goes into the equation and your tax accountant is going to ask you what your basis is, and I get asked that all the time we're coming up to closing and my tax accountant wants to know what the basis is and I probably don't have that information. I have to ask a lot of questions and find out how they exactly got that property, and so they're going through that whole process. Talk about other than property that we've already discussed. What are some other opportunities for people to exchange into?
Speaker 3:Okay, and interestingly enough, there are a few other choices. You don't often see them around here, or especially within the farmland environment of those owners, but we have what's called a Delaware Statutory Trust, which has been around for decades Nothing brand new on that which has been around for decades nothing brand new on that. But it basically allows you to do a 1031 into a group of properties. Typically it could be just one, but typically it's maybe two or three different properties that are managed by a general account manager of that entity and typically they're a commercial type building that has tenants that have leases on them, or it could be a multifamily as well, but large assets 5 million, 10 million, 20 million and you then become a part owner of it and that would be a tenant in common that you would have an interest on.
Speaker 2:Or a TIC right, we love our acronyms. So tenant in common is a TIC, that's correct, and you'd own it in a DST or Delaware Statutory Trust, and we'll try and throw in some of the other acronyms here. Yeah, we'll get them.
Speaker 3:But that's available and allowable to do. Are they accessible around here? Yeah, are the properties probably local in nature? More than likely not. You would be more typical in a suburb of a major metropolitan area, more typical in nature. And then you have what are called real estate investment trusts and, as it turns out, we do have REITs, r-e-i-t. Real estate investment trust. We do have some of those that have a local nature here in Fargo and North Dakota, so we do have some local proximity to using those as an alternative as well. Steve.
Speaker 2:Yep. So REITs Real Estate Investment Trust and I've worked with a lot of clients that have explored those and invested in those and became one of the owners in those and invested in those and became one of the owners in those. So DSTs, reits. There's another DST that we're probably not going to get a lot into, but that's a Deferred Sales Trust.
Speaker 3:Deferred Sales Trust Yep, they've been around about 20 years as well. A Deferred Sales Trust, then, typically in nature it's going to be for the seven, eight digit type of sale. Sure, yeah, somewhere probably, where they'll have a million dollars in capital gain and, with that being said, that means they're going to have $200,000, $300,000 in taxes that they would more than likely have to pay if they followed through with that particular sale.
Speaker 2:Yep, I also have had people and this is a little bit off a topic but well, they'll set up a charity or they'll gift it into a charity and then we sell the property.
Speaker 2:And then that process of course does not and I'm not giving tax advice here, but you know that would alleviate a lot of the capital gains tax going through that that process of chair, of gifting it. And yeah, we just had a sale up in in in Ramsey County and Nelson County that that that owner he gifted, he gifted that property and then we did the auction sale for and we're in the closing process right now. So that that works out. Works out well too for for the, for the right situations, um. But yeah, those are, those are kind of the highlights the dsts, the reeds, um, the other dsts, any other ones that you, uh, that you're familiar, ticks, the tenant, common, we, you well you can do standard 1031, but you'd be a tick owner in a, in a bigger property or a partner partnership right, you can do an installment contract, the old contract for deed, yep, the contract for deed.
Speaker 3:You don't eliminate the taxes, you just string them out and hopefully just get into a lower bracket.
Speaker 2:Yep, you stretch them out on those. Yep, the TICs, the tenant in common. Well, all of these entities, or all these vehicles that you're using, it's really important to. The ownership structure follows through from beginning to end. On that and we'll maybe get a little bit into that in the fourth segment here because we're running out of time for our third segment. Larry, can you stick around for the last segment One more time?
Speaker 3:Let's let it rip One more time.
Speaker 2:All right, before we close, I want to thank our sponsors, pfeiffer's Auction and Realty and Pfeiffer's Land Management.
Speaker 2:Pfeiffer's team of land and equipment auctioneers, real estate agents and land managers will give you a free consultation on selling your land and equipment for managing your farmland.
Speaker 2:Nobody does it better than the team at Pfeiffer. Stick with us for the last segment, thank you. Welcome back to America's Land Auctioneer. I'm Steve Link, broker for Piper's Auction Realty. We're glad you could join us today. Don't forget you can catch up on all our past episodes by visiting Piper's website, that's piperscom, and clicking on America's Land Auctioneer to access our podcast library on Apple or Spotify.
Speaker 2:All right, before we get into this last segment, again I want to thank our sponsors of American Land Auctioneers Pifers Auction and Realty. Pifers Land Management. Pifers Team of Land and Equipment Auctioneers, real estate agents and land managers will give you a free consultation on selling your land and equipment or managing your farmland. Nobody does it better than the team at Pfeiffer's when it comes to selling your land and equipment or managing your farmland. All right, larry O'Callaghan with Pfeiffer's has been here for the first three segments and he's decided to stay on for the third, one or fourth one, the last one and before the break. Here we were talking about ownership and how that is supposed to pass through to the replacement property. And so if you have an ownership entity if it's an individual or some kind of LLC or some kind of entity it really is supposed to follow through that ownership to the replacement property. Is that an accurate statement?
Speaker 3:Larry, that is very accurate, Steve.
Speaker 2:So, Larry, if people have questions and want to contact you, what's the best way to get ahold of you?
Speaker 3:Well, of course we're going to call, call the Piper's main office and they'll forward it straight through to me. Or, if you got a pen handy, I can give you a phone number and it's area 701-799-7560.
Speaker 2:All right, yep. So if you got questions about 1031 tax exchanges, reits or anything like that, give Larry a call For this last segment. I wanna go through the do's and don'ts on 1031 tax exchanges and so that we make sure that people are educated on this. All right again, if I have an exchange and I have money sitting in the intermediary and on the 50th day I turn in my replacement properties, did I do that right, wrong, wrong, 45 days, that's important, 45 days. All right, you can do it on the second day, right, or?
Speaker 2:if you already know what property you're gonna choose. You can do it right away you can set it up right away. You can identify it and close it all in the same day, yep, and I know people that have done that. They already know what the replacement property is and they have that all figured out. So we get into 12 months, two years, and you find a replacement property and it was one of them on your list and you close. Does that work? On a 1031 exchange.
Speaker 3:Excellent question. Hopefully there's no attorneys listening today, Steve, because there's discrepancy on that one. To the best of my knowledge, Some are fine with 12 months. Most of them will say 24 months is the safe haven.
Speaker 2:Okay, I think I maybe misspoke. So the question that you answered was actually a really good point. What your question? Um, the question that you answered was actually a really good point. What Larry was answering was if I owned a property for a year or two years and I went and sold it again um, can I go through the 1031, uh process or is is that? Does that not qualify? And you're right, it uh. There is some legal, legal um um differences there on that Um, but for sure um, it's pretty common that people are, if you've owned it for two years, that you're going to be in the clear Um. They also some people just say, if you never intended on selling um, that it could even be less Um and but we're not going to get into legal advice. Seek out your attorney's advice on that. So on the back end, I was going to get back to the 180 days to make sure you close within six months.
Speaker 2:The other thing I wanted to talk about is a 1033. And, larry, I don't know if you've worked a lot with the 1033 tax exchanges, but with me being headquartered out of the Fargo-Moorhead area and the Fargo-Moorhead diversion, I see this more than you would think and basically the way that I understand that IRS rule is if you own property that either has been eminent domain or has the threat of eminent domain by a government entity, then you qualify for a 1033. A lot of the basics are the same as a 1031, meaning that you can find a replacement property, but your timeframe and your intermediary requirements are much different. Your timeframes are up to two years and you can petition to get a third year on that. So you have three years. You can keep the money in your own account and do with it what you want and between that timeframe.
Speaker 2:But you do need to find a replacement property within two, possibly three years of that, and that's a 1033. So if you have a 1033 opportunity, you know again, make sure you talk to people that are in the know on that so you follow the rules on it. But that's a that's a great, great option. Now one would argue that if you're going to do a 1033, you're trying to predict the market, because if you get what you feel like is a premium on your year one and you wait till two or three years to buy a replacement property, you're going to be subject to the market appreciations if that happens and that may not be to your best, best advice or best opportunity. If you're trying to save that 20, 25, 30% capital gains tax and then you end up spending 20, 25% more on the replacement property, well now you, now you've kind of defeated the purpose. That's correct yeah, got.
Speaker 2:to flip that coin? Yep, all right, can I just talk to a family friend and they be the intermediary? No, nope, we need a qualified intermediary. Yes, yep. What are some other things that we should really look out for on the process?
Speaker 3:Well, one item here before we end up closing off. I want to do a look back here on a comment that I had made and was talking about real estate investment trusts and doing a 1031 exchange into them, and by law you cannot do a 1031 directly into a real estate investment trust because those are shares and you don't have direct ownership of it. So that is not allowed and that would have been something that would have been picked up incorrectly there. So in order for that to occur legally you have to do a 1031 into another 1031 property, as we've been talking about, and then after a period of time, then you can go into a real estate investment trust via again another acronym that you talked about and another subsection of the code which has been around since 1991, nothing new there either and it is a 721 Upreet Umbrella Partnership Real Estate Investment Trust, 721 Upreet. So to get from land to ownership into a real estate trust you've got to do a 1031 and a 721 up rate in order to accomplish that.
Speaker 2:Yep, and it's really important that, um, that people that are looking at doing that understand what um the final product there, the, the, the, the REIT, um, when you're, when you're in that, um, it's. It's a non-publicly traded REITs cause. There are REITs that are publicly traded, those to get into the publicly traded one you'd have to go directly into property for property into that. But that's a whole different animal.
Speaker 2:But these non-publicly traded one have been nice opportunities for some of our clients that want to stay in the real estate segment, that want to own a piece of multiple properties. You know, that's the power of a REIT real estate investment trust is they own multiple properties and so if you have one vacancy you don't see it at the bottom line back to you because there's so many properties and it's the power of numbers there that you're a piece of a big, big pie. You know. And there's the other opportunities or advantages of a re-retire is you don't have the management, um, you don't have the management headache of of a property like you would when you would exchange into an apartment building or or or any other kind of investment property there that is correct, steve.
Speaker 3:You know you had all kind of the high points on it all right, larry.
Speaker 2:well, we're running out of time. I want to make sure that you share with your listeners what you got me for Christmas. Just kidding, I don't want to put you on the spot there, but, larry, I do want you to share everybody. Share your phone number again. So, in case they didn't have a chance to write it down, I want you to get your phone number again.
Speaker 3:And again, of course you can just call the main office of Piper Auction and Realty over at the Moorhead office. But my mobile number is area 701-799-7560.
Speaker 2:All right, before we go today, I want to thank our sponsors at Piper's Auction and Realty and Piper's Land Management. Piper's team of land and equipment auctioneers, real estate agents and land managers will give you a free consultation on selling your land and equipment or managing your farmland. Nobody does it better than the team at Piper's when it comes to selling your land or equipment or managing your farmland. Thanks everybody for listening. Come back next week for all new episodes.
Speaker 1:Thank you, 1,000, not a bit of down. 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1.