Real Estate Exchanges: Banter and Barter

by Roberta Murphy

Yesterday afternoon and evening were devoted to Leaving Las Vegas. I was tired of long lines at the airport, anxious to get back to San Diego, and was dismayed to hear the Southwest flight had been delayed two hours.

I spent much of the time catching up on email, reading about Costa Rica and near the end of the wait, met David Greenberger, a real estate attorney and San Diego 1031 exchange specialist. We discussed real estate exchanges at length. Some tidbits from San Diego’s real estate exchange master:

1. The first government-challenged exchange occurred when two farmers agreed to exchange horses. One owned six white horses; the other, six black ones. After the amicable swap, the federal government claimed that a taxable event or sale had occurred. Not so, claimed the farmers. They challenged the government and won. In 1921, like-for-like property exchanges emerged as legally recognized income tax shelters.

2. Real estate 1031 exchanges no longer require that the exchanged properties be “like for like.” Someone can now trade their La Jolla duplex for a La Costa vacation rental–or an avocado grove in Fallbrook. 1031 exchanges allow for any U.S. real estate to be traded for any other U.S. real estate.

3. Real estate agents in the San Diego and other resort markets tend to be more generally familiar with 1031 exchanges than agents in the Midwest or the East Coast.

4. Though 1031 real estate exchanges are certainly tax deferred, they can also result in facilitating a tax free gain under current law. You’ve got to love David’s motto: œDeath and Taxes are Certain Unless You Exchange!

It also turns out the we had each spent a couple of days in Las Vegas attending the National Association of Realtors (NAR) Convention. He had 1031 real estate Exchange classes to teach, and I–along with several other real estate brokers–had a meeting with the developers of a five star luxury resort in coastal Costa Rica.

And that explains my overwhelming curiosity about 1031 exchanges–and how they might somehow be utilized by investors seeking to exchange U.S. real estate investment equity for offshore real estate investment in a luxurious Costa Rica development….