The slide deck from the June 6, 2023, sales meeting at the North Pointe Office of Berkshire Hathaway HomeServices Homesale Realty covering the following topics: 1. Financing Condominiums, 2. Review of Personal Umbrella Insurance Policy, 3. The 1031 Exchange Guide for Real Estate Professionals

11. 1031 Guide for Real Estate Professionals:
The POWER of 1031 Exchanges
PRESENTED BY:
Ellie Trovato, CES®
Certified Exchange Specialist®
Exchange Officer

12.  Introduce (or provide a refresher) on 1031 exchanges
 Discuss the benefits of 1031 for YOU and your clients
 Provide a brief overview of 1031 exchanges
 Share tips to use 1031 as an effective marketing tool
 Leave you with information that will help you utilize this
powerful tax strategy
 Review 1031 CORP. resources available for you
 Q & A
TODAY’S OBJECTIVES

13. 1031 EXCHANGE
WHAT IS A 1031 EXCHANGE?
Section 1031 of the Internal Revenue Code provides no
gain or loss will be recognized on the exchange of real
property held for productive use in a trade or business or
for investment.
Not for personal use properties or property held for sale.

14. 1031 EXCHANGE
 Sale of a business use or investment property followed
by the purchase of another within 180 days and linked
together by the necessary docs.
 Exchanges have been allowed since 1921.
 Based on continuity of investment – the continuation of
the initial investment.

15. How YOU Can Benefit from 1031
Knowledge = Power

16. Why Should YOU know about 1031 exchanges?
 Today’s customer expect us to know everything!
 Knowing about exchanges leads to
 More listings
 More sales
 More commissions
 More opportunities for referrals
 More exposure
 REFERRALS! LOTS OF REFERRALS!
KNOWLEDGE = POWER

17. 1031 Exchange Case Study
The Power of a 1031 Exchange

18. FACTS
 Taxes are due on the gain/appreciation
 Short-term gains apply to property held less than 12 months or
for property held for sale
Taxed as ordinary income
Could be as high as 37%
 Maximum long-term capital gain tax rates apply to individuals
who held property for more than 12 months
TAX FACTS & RATES

19. CAPITAL GAINS*
 20% for taxpayers with AGI exceeding $492,300 (over
$553,850 for married taxpayers)
 15% for incomes more than $44,625 and less than $492,300
(between $89,250 and $553,850 for married taxpayers)
 0% for incomes less than $40,400
($80,800 for married taxpayers)
Effective 1/1/2023
TAX FACTS & RATES

20. 3.8% NET INVESTMENT INCOME TAX
 Affects individuals, estates and trusts with modified gross
annual income exceeding $200,000 and married couples
exceeding $250,000
 Applies to unearned income (examples: rental income,
capital gains, dividends, non-qualified annuities)
TAX FACTS & RATES

21. DEPRECIATION MUST BE RECAPTURED
 Generally recaptured at 25% regardless of tax bracket
TAX FACTS & RATES

22.  All states with an income tax regime either follow the federal
code or have adopted their own version of like-kind
exchanges.
 PA will recognize 1031 on new exchanges initiated after
1/1/2023
STATE INCOME TAX

23. 1031 vs. SALE
CASE STUDY
ASSUMPTIONS
 Individual owned property for 10 years
 Annual salary of $225,000 and $125,000 of additional
unearned income (interest, dividends, rental income)
 Paid $350,000
 Made no capital improvements
 Took $150,000 in depreciation
 Selling for $600,000

24. 1031 vs. SALE
CASE STUDY
ASSUMPTIONS
 Capital gains of $250,000
 With $350,000 of income and $250,000 of gain, falls into
20% capital gains tax rate
 Subject to 3.8% Net Investment Income Tax
 May be subject to highest income tax bracket
 Depreciation recapture of $150,000 at 25%

25. 1031 vs. SALE
CASE STUDY
Taxable Sale 1031 Exchange
Sale Price
15% Capital Gains
5% est. State Income Tax**
3.8% Net Investment Tax
Depreciation Recapture
Tax Liability
Net Proceeds
Buying Power (30% down)
$600,000
$37,500*
$12,500
$9,500
$37,500
$97,000
$503,000
$1.67M
$600,000
0
0
0
0
0
$600,000
$2M
*Calculated at 15%. Actual amount could be higher. **Varies by state. 5% used as an average.

26.  Immediately avoids $97,000 state and federal tax
 Able to invest all proceeds
 Leverage extra $97,000
 Acquire new property $330,000 MORE
 Collect higher rents from Day 1
 More depreciation available
 Enjoy greater appreciation long-term
1031 vs. SALE
CASE STUDY

27.  Immediate tax deferral
 Time value of deferral
 Avoid all income being taxed at
higher income tax rate
 Avoid 3.8% Net Investment
Income Tax
 Greater buying power
 Increased ROI
 Less management responsibilities
 Consolidation
1031 BENEFITS
 More depreciation available
 Create new cash flow
 Diversification of assets
 Relocation of business
 Exit strategy for business owner
 Future conversion to primary
residence or vacation home
 Possible elimination of gain
 Estate preservation with stepped
up basis
 Current estate tax exclusion: $12.92M

28. Overview of 1031 Exchanges
Unlocking the Power of Exchanges

29. LIKE-KIND PROPERTY
 Must be real property
 Refers to nature or character
 Specific type of property not
essential
 Must be used for business use
or investment
 Located within 50 states, D.C.
or selected territories
 Can buy or sell multiple
properties

30. QUALIFIED USE
 Holding period not defined in regulations
 One to two years is a good rule of thumb
 Two year safe harbor provided in Rev. Proc. 2008-16
 Previous proposals for 1 year or 2 year holding period
 Intent of taxpayer is key
 Look at the picture you have painted (thru use, tax reporting)
 Personal use must be minimal (§280A)
Exchangers should consult their tax and/or legal advisor to determine if their property is eligible.

31. QUALIFIED INTERMEDIARY (QI)
 Required party needed to
facilitate the exchange
 Who is qualified?
 Cannot be a close relative,
employee, partner or anyone
who has provided real estate,
law, or tax services in past 2
years
 This is the role 1031 CORP.
serves in the transaction

32.  Time periods begin with conveyance to buyer of first
relinquished property
45-Day Identification Period
• Requires written identification letter signed by Exchanger
180-Day Exchange Period
• Requires acquisition of all identified replacement property
• May require extension if date falls after due date of tax return
Time periods run concurrently and are based on calendar days.

33. MAXIMIZING YOUR
TAX DEFERRAL
 To maximize your deferral, you must acquire a replacement
property with equal or greater VALUE and EQUITY.
 Values take closing costs into account.
 A trade down in property value or equity is taxed on amount
of the larger trade down.
 When trading down, your tax advisor can help you determine if the
1031 exchange still makes sense.

34. EXCHANGE PROCEEDS
 You cannot have control of the exchange funds.
 Exchange Agreement places restrictions on funds.
 Exchange funds held by the 1031 CORP.
 Have right to earn interest on your exchange funds
 Interest is restricted in same manner as principal
 Exchange Account Summary provided at end of exchange

35. SAME TAXPAYER
 Title to the replacement property must be vested in the same
name as the old property.
 Any taxpayer (individual or entity) can exchange.
 Exception is a disregarded entity
• Single member limited liability company
• Sole member must be taxpayer who sold relinquished property and not file as a
corporation
• Revocable living trust
• Land Trust

36. 1031 CORP. is your 1031 Resource
Let our Team Help You!

37. 1031 AS A SALES TOOL
 Market yourself as a 1031 expert
 List “knowledgeable on 1031 exchanges” on your bio (website,
LinkedIn, social media, etc.)
 Include 1031 information mailers / emails to investors in your area
 Track customers who are also real estate investors
 Prospect business owners in your local community
Can they take advantage of any of state or local tax incentives?

38. 1031 CORP. IS
YOUR 1031 RESOURCE
 Complementary consultations
By phone or Zoom
 1031 information to post on your website
 Social media posts
 Articles for your newsletters
 Postcards for your investor clients
 Bounce ideas or questions off our Exchange Team

39. 1031 CORP. IS
YOUR 1031 RESOURCE
 Co-brand our 1031
CORP. brochure by
attaching your
business card before
sharing with your
clients.

40. KNOWLEDGE = POWER
 Sample Co-Branded Fact Sheets
 Contact me to have personalized with
your contact info
 1031 Exchanges Made Easy
 Sale of Primary Residence
 Vacation Homes
Your Name, REALTOR®
Your Real Estate Company
123 Main Street, Suite 7000
Anytown, PA 19873
457 Side Street, Suite 4B
Plaintown, NJ 08746
Office: 215.948.0000
Cell: 267.847.9483
Email: Your.Name@realestate.com

41.  Let 1031 CORP. co-host a seminar or webinar with for
your investor clients
 1031 CORP. can discuss the benefits of 1031 exchanges and your can
share your knowledge of the local market
 1031 CORP. can prepare a promotional flier for you!
 1031 CORP. can help you promote it!
1031 CORP. IS
YOUR 1031 RESOURCE

42. CHOOSING YOUR QI
 The QI is your trusted partner throughout your exchange
 Guides your client through each step of the transaction
 Helps ensure the regulations are followed
 Works hand-in-hand with all parties to the transaction
 Keeps your client aware of time deadlines
 Has security measures in place to protect the exchange funds
 Keeps the process simple for all parties
 Answers (and anticipates) all questions

43. 1031 CORP. ADVANTAGE
 Exchange Team with the experience and expertise to
facilitate even the most complex transaction
 CES® Designees on Staff whose knowledge of Section 1031
and its application has been verified by independent third-
party testing
 Knowledgeable in local real estate and closing practices
 Superior security of funds
 Specialize in keeping exchange process simple

44. SUMMARY
 1031 exchanges are a great wealth accumulation vehicle.
 Build investment portfolio with pre-tax dollars
 Accomplish short and long-term investment objectives
 The more you know, the more you will benefit.
 1031 CORP. welcomes the opportunity to help you put
Section 1031 to work for you!

45. ADVISORY
 A 1031 exchange is a great tax strategy but is not always the
best one in every situation.
 1031 CORP. cannot provide tax or legal advice.
 Exchangers should discuss their situation with a professional
advisor who can help determine what is best in their
situation.
 1031 CORP. is always available to answer general questions
and/or speak with an Exchanger’s professional advisors.

46. QUESTIONS & ANSWERS
Ellie Trovato, CES®
Certified Exchange Specialist®
1.800.828.1031 ext. 215
ellie@1031CORP.com
www.1031CORP.com
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