The intermediary also has to make sure certain dates are adhered to. For instance, a replacement property has to be found within 45 days after the sale of the property, and closing has to take place on the new property within 180 days.
By using a 1031 exchange, the client can create a diversified portfolio with higher cash flow, potential capital appreciation and an inflation hedge.
“These transactions can be complicated, but no one said it would be easy to defer capital gains,” Hubler said.
The other advantage of the arrangement is that when the property owner dies and the investment is sold, there is a “step-up” in value. For tax purposes, the value is set at current market value, reducing capital gains taxes to very little or zero.
“Therefore, the son will inherit the full value,” Hubler said.
The couple is now in the process of working with a buyer to make a recommended switch. They will no longer have to manage property because the Delaware statutory trust sponsor will make the property decisions and the couple will have a diversified portfolio based on real estate, Hubler said.
“This strategy is not for everyone. It is only for accredited investors with at least $1 million in investable assets, or an income, for a couple, of at least $300,000 annually, but it is advantageous for some,” he added.