For example, whenever possible, George D. Livingston, founder/chairman, Realvest Partners Inc., Maitland, FL and a property owner himself, advises seller clients to use 1031 exchanges to defer taxes.

"The property will be given a new basis (cost figure) in the estate when the owner dies and capital gains are forgiven," Livingston tells GlobeSt.com. Estate taxes, however, may still be due on the property.

The exchanges may be done on rental properties, rental vacation homes, land sales and office, retail and industrial building sales.

The developer says his typical deals show a pattern.

They comprise "individuals moving here from another state and moving their real estate investments here; local land owners moving their investments from site to site as their investments appreciate; investors putting land into triple-net holdings with small risk and little management; investors putting existing land into new land that will be sold or developed later; and investors putting an existing building into another building or buildings."

Most of Livingston's deals are in the $1 million to $2 million range. He does one to three deals per year and has completed eight or nine in the last five years.

"We try to always ask our sellers if they want to exchange," the developer says. "Some do; some do not," but "we have a small group of clients that do it over and over."

The exchanges can also be done involving a trade to a REIT for UPREIT shares, Livingston tells GlobeSt.com. "It solves some tax issues, gives liquidity and diversification" to a deal.

At Arvida Realty Services Commercial Division, Winter Park, FL, senior broker Jeffrey Bloom uses the Florida regional office of Asset Preservation Inc. in Gulf Breeze, FL to close his 1031 exchange transactions.

"They handle every aspect of the exchange, once the properties are identified and under contract," Bloom tells GlobeSt.com.

In his most recent 1031 transaction, Bloom had a small retail building exchanged from the corner of Winter Park Avenue and Corrine Drive in Winter Park, FL to a small industrial building off Candace Avenue in nearby Maitland, FL.

"The seller wanted to reinvest in industrial property and find a property further north," Bloom says. "This would make it easier for him to manage because he owns other industrial properties; the property is located closer to his home; and he would enjoy the benefits of tax deferment."

He is currently doing another exchange transaction with two small office buildings in Winter Park.

"The real power of a tax-deferred exchange is not just the tax savings," Cherie M. Embree, division manager, Asset Preservation Inc., tells GlobeSt.com. "It is the tremendous increase in purchasing power generated by this tax savings."

For example, she says, "With the advantages of leverage, every dollar saved in taxes allows a real estate investor to purchase two to three times more real estate." The taxes are due only when the last owner of the property cashes out of the investment, Embree says.

She teaches realtors and developers nationwide the ins and outs of deals that can be worked within the framework of new tax laws. Her company, headquartered in Granite Bay, CA, has completed 50,000 1031 tax-deferred exchanges in its 10-year history.

Instant Insights /

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