Everyone from the greatest tax attorney on down knows that the Internal Revenue Code is complicated and impossible to understand. I’ve always maintained that the easiest way to achieve true tax simplification is to pass a law requiring everyone in Congress and the President to prepare their own tax returns, by hand, and be subjected to a line-by-line audit. I guarantee that the tax code would be shortened and made easier to understand. I’m not sure that would be so great for tax attorneys, but I’m sure it would be good for America.
Since we know this will never happen, we are left with trying to understand the laws as they are currently written. Fortunately, a few of us 
make our living understanding and applying the tax laws in ways to help our clients. I have been teaching tax law to CPAs, attorneys, real estate brokers, real estate and other investors, and anyone who will listen since I began practicing law over 17 years ago. I believed then, and I believe even more strongly now, that those who are better educated about how the tax laws work have a decided advantage over those who don’t. Seeking an experienced professional is certainly a wise move, but the client who has more than a mere passing knowledge of the tax laws will, in the long run, be more successful than his or her peers who lack a solid understanding. Remembering that it is not what you make, but what you keep that is important.
All of this brings me to the topic of 1031 exchanges. 1031 exchanges are a very powerful tool, in the right hands. While in many respects 1031 exchanges are very simple, and should scare no one, certain complex nuances can be exploited to save even more taxes when used properly. Alexandra Hart and I spend a good portion of our work time educating investors and their professionals about basic and not-so-basic aspects of 1031 exchanges and debunking the most common myths and misunderstandings about 1031 exchanges. We send out monthly educational newsletters to further educate exchangors and their advisors.
One of the basic areas where we educate investors deals with what types of properties qualify for 1031 exchanges. Once people learn that they can exchange a three-family rental for a commercial building, or raw land for improved land, or property in Rhode Island for property in Florida, they start to see the unlimited possibilities. We educate exchangors about the time constraints set forth for 1031 exchanges. Exchangors who understand these rules make better decisions about which properties to pursue. Alexandra spends many hours each week speaking with CPAs explaining how to calculate the tax a client would owe without the exchange and how to compare it to the tax savings of doing the exchange.
We also explain the possibilities of investing in tenant-in-common arrangements, whereby a small investor can leverage his or her exchange proceeds into a larger, more profitable, and easier-to-manage property, all within the rules of section 1031. Again, education is the key. These investors are more informed and geneally make smarter investment decisions.
I encourage everyone who is interested in exchanging to read, read and read, and ask questions. As a caveat, make sure you ask the right people, not your brother, your neighbor, or your friend from the gym (unless these people are trained in 1031 exchanges). Visit our website at www.allstates1031.com to read the many articles I have written. Continue checking this blog. Call or e-mail me or Alexandra or request our free 1031 exchange guide and start the education process early to give yourself the best chance for a successful 1031 exchange.
Tags: 1031, 1031 exchange, alexandra hart, All States, Certified Exchange Specialist, CES, investment, investment property, IRS, Moore McLaughlin, QI, qualified intermediary, qualifying property, Tenant In Common, TIC