TERESA STORY-TURNER
Real Estate Exec: Principal's 1031 Exchange Alliance

Most people—including many Real Estate professionals—get hazy-eyed when they hear the phrase “1031 Exchange.” The phrase conjures the image of a government-sized warehouse filled with rows and columns of desks where brown-clad IRS agents write new regulations just to fill the space on their timecards. The regulations are slightly less complicated than astrophysics, and only a dedicated 1031 Exchange professional can keep abreast of the ever-evolving rules. Fortunately, such professionals exist.

Most REALTORS® who specialize in residential space do not encounter the need for a 1031 Exchange. However, when such an occasion presents itself, a professional REALTOR® should be able to recognize situations when an exchange may be feasible.

What is 1031 Exchange?
In principle, if a taxpayer elects to exchange property held for productive use in trade or business, or for investment purposes solely for like-kind property to be held in trade or business, or for investment purposes, no gain or loss shall be recognized under Section 1031 of the tax code.

Here’s how it works: before the sale of the relinquished property is finalized, the property owner must engage the services of an exchange facilitator (EF). The EF drafts the necessary exchange documentation, signatures are obtained, and the settlement agent releases the proceeds derived from the sale to the qualified intermediary (QI). The QI is then required to hold the exchange proceeds in trust for the benefit of the taxpayer in either segregated escrow or trust accounts per Nevada law until the replacement property is ready to be finalized. Adhering to the specific rules and regulations of the tax code can be a daunting task for both taxpayers and their respective REALTORS®; this is where a seasoned exchange facilitator makes all the difference.

History of 1031 Exchange
Section 1031 of the IRS code, which allows tax deferments for the exchange of “like-kind” properties, has been around since the 1920s. Throughout most of its history, 1031 Exchange transactions have been difficult because the IRS required a “simultaneous exchange” of property. It was hard for a seller to locate a buyer who simply wanted to swap properties rather than conduct a standard Real Estate transaction that would enable the taxpayer desiring the exchange to acquire suitable like-kind replacement property from a third-party seller.
.
After a series of lawsuits, the IRS lifted the “simultaneous exchange” requirement. In 1991 the IRS added “Safe Harbor” provisions, which allow a small amount of time between the sale of the old property and the purchase of the new property. In addition, the 1991 provisions require a “qualified intermediary,” which is government-speak for a 1031 Exchange professional. With the stroke of a pen, the 1031 Exchange industry was born.

The 1031 Exchange Industry
One such professional is Teresa Story-Turner, president of and certified exchange specialist for Principal’s 1031 Exchange (which is not affiliated with Principal Financial Group). Teresa says that a 1031 Exchange practitioner can provide a Real Estate professional with valuable knowledge that can translate to a new level of customer service and an increased sales volume. “If a REALTOR® secures a listing for investment property, they would be doing a client a disservice if they were unaware that their client could potentially save significant tax dollars.” Fortunately, Teresa offers 1031 Exchange classes and presentations for Real Estate professionals in order to keep the community informed about the tax deferment process and regulations.

Teresa has more than 20 years of cumulative experience working in the Real Estate sector. Her experience includes over 10 years as an escrow agent and 11 years as an exchange practitioner. In June of 2007, she ventured into entrepreneurship and founded Principal’s 1031 Exchange. She personally conducts her company’s exchanges along with her exchange officer, Selena Work, who has been on Teresa’s team for five years. Teresa also holds a Nevada Real Estate license, which gives her an added layer of knowledge.

One common trait between the Real Estate profession and the 1031 Exchange profession is the importance of relationships. Both industries involve clients who may lie dormant for years and then suddenly find that they need professional services. It takes a strong relationship to entice a client to call your company for repeat business a few years after their last transaction.

In addition to developing effective communication strategies to stay in constant contact with customers and potential clients, Teresa also relies on her reputation to attract repeat clients. Her proven and trusted reputation of ethics and integrity is quantified by the fact that well over 90 percent of her business is generated from repeat clients. Her relationships extend beyond her client base. She says, “Many of my old colleagues are now clients or a referral source.”

Because 1031 Exchange is a relatively new industry, transparency is a major concern. Teresa recognized the need to put her customers’ concerns at ease by doing business with banks that can provide separate monthly statements to customers. “These third-party-issued bank statements demonstrate to our clients that the exchange funds are where we say they are at all times. In addition, no funds are transmitted without express written authorization from our customers,” she says. “I have had the good fortune to provide a specialized level of service to investors that helps them sustain and build wealth. Our customers come to us thrilled that they have made a wise investment decision. We want them to be just as thrilled in their decision to choose us as their QI.”

1031 Exchange FAQs

What is the advantage of 1031 Exchange?
When a client sells a property and buys a more expensive property, the client can defer the capital gains tax, provided IRS procedures are followed.

How long must a client own the property before exchanging it?
The client must own the property for two tax seasons (a year and a day).

Does the client receive money from the sale of the relinquished property?
No. All money passes through the 1031 Exchange company in accordance with IRS regulations. Profit from the sale of the old property becomes the down payment for the purchase of the new property.

How much time does a client have after selling the property to complete the exchange?
A taxpayer who wishes to complete a 1031 Exchange should contact a 1031 Exchange professional before selling the old property. The client has 45 days to identify the new replacement property and 180 days to complete the transaction. Both time periods begin upon close of escrow for the relinquished property.

Is there a limit to the number of exchanges a client can make?
No. A client can continue to exchange properties and defer taxes for life.

How do I learn more about 1031 Exchanges?
Teresa stresses that every exchange transaction is unique and specific to the taxpayer’s needs and wants. Taxpayers are encouraged to seek the advice of competent tax counsel when structuring a tax deferred exchange. Free consultations are available; appointments are recommended. To learn more about 1031 Exchanges, contact Teresa at (702) 242-1031 or visit www.1031principal.com.

Photography: Elisabeth Libby