1031 Like Kind exchange

[Roberts]

Client is trying to do a Like Kind exchange and I'm not an expert on it. I'm referring him to a specialist but I had questions.

1. he wants to exchange for a publicly traded REIT - IMO that is forbidden. Correct? Section a, 2 under "exceptions" includes stocks, bonds, or notes.
2. can he exchange a farm for commercial / industrial property?

What I've read says YES but I remember a few years ago they clamped down and limited what really is Like-Kind properties. Is there any IRS clarification on that?

Thanks.

[Roberts]

It appears the tax client didn't understand what he'd read in a tax newsletter he subscribes to. I believe what they were discussing is an UpReit and he's confused about the basics of it.

[Burke]

1. he wants to exchange for a publicly traded REIT -
Thanks.

Exchange what for a REIT?

[Roland Slugg]

I assume your client owns real estate that he wishes to exchange on a tax-deferred basis. If so, he can not exchange it directly for shares in a REIT, because shares of stock (in the REIT) are not "like-kind" property. He can, however, enter into an UPREIT program, which is a two-step (or three step process ... step #3 being the conversion of some or all of his OP units into shares of the related REIT itself).

Before embarking on such a plan I suggest that you and your client do more reading ... to learn more about what UPREITs are and how they work.

Regarding your second question: All real estate is regarded as like kind to all other real estate, as long as it's located in the United States.

[Roberts]

I assume your client owns real estate that he wishes to exchange on a tax-deferred basis. If so, he can not exchange it directly for shares in a REIT, because shares of stock (in the REIT) are not "like-kind" property. He can, however, enter into an UPREIT program, which is a two-step (or three step process ... step #3 being the conversion of some or all of his OP units into shares of the related REIT itself).

Before embarking on such a plan I suggest that you and your client do more reading ... to learn more about what UPREITs are and how they work.

Regarding your second question: All real estate is regarded as like kind to all other real estate, as long as it's located in the United States.

Thanks. This is what I told him yesterday.

Old clients get delicate. I told him he needed to hire a real estate lawyer who specialized in 1031 exchanges - he wasn't happy.
He's 80 years old and has FINALLY recognized that he may die some day. He intentionally built a rather complex investment portfolio over 50 years and now he wants it liquidated / simplified overnight without paying any tax. His wife is younger and doesn't have a clue how to manage any of it.

[DaveO]

Sounds like he is looking at a "Tenants in Comman" arrangement. They can be a good way to consolidate a real estate portfolio into a single managed property. I would echo Roland's advice.

[Roland Slugg]

I told him he needed to hire a real estate lawyer who specialized in 1031 exchanges.

I wouldn't do that. Waste of money at this point. If your client is determined to sell his current real estate and reinvest the proceeds in an UPREIT, he should: (1) Investigate the various UPREITs that are accepting new investors; (2) Sell his existing real estate; then (3) arrange for a QI to handle the funds and paperwork. Why would he need a lawyer?

Since your client is 80, however, his wisest course of action might be to just sit on his current investments, passing them on to his heirs when he dies, who will get a stepped-up basis in everything. This is partly an estate planning decision and partly an investment decision. If his current investment(s) are underperforming, selling and reinvesting might be a wise move. But if they're producing a reasonable return, why not keep them? That ploy defers taxes, too.

[Roberts]

As of last night he's selling everything and buying a factory.
I guarantee you this winter he'll change his mind again.

None of it makes any sense but his secretary told me yesterday that he's turning his life upside down and generating BIG decisions everywhere. Her opinion is that after 3 months sitting at home post surgery and feeling worthless, he wants to generate urgency and excitement and this is his current project.