Julie Tumbaga is the Vice President & Regional Sales Executive at OREXCO and has overseen it's tax-deferred exchange department since 2001.
With 15 years experience in the industry, she successfully manages the department’s staff, marketing initiatives and educational program.
She received a Bachelor's of Arts/Sciences in Architecture & Interior Design from SDU and previously was a sales and marketing consultant at Old Republic Title & Escrow of Hawaii.
The IRC 1031 Tax Deferred Exchange provides that in order for an individual to qualify for a tax deferred treatment, the property to be relinquished must be exchanged for a replacement property that is of like kind.
Like kind is understood as something that is similar in nature and character. The fact that any real estate involved is improved, or unimproved, is not material for that fact relates only to the grade or quality of the property and not its kind or class.
For example, vacant land being held for investment may be exchanged for single-family rentals used for a trade, business, or any combination of the following: commercial, farms, golf courses, hotels, industrial, motels, single/multi-family rentals, office, ranches, retail and land.
A major issue arises when the Exchanger is selling their relinquished property and they use Exchange Proceeds to pay off either expenses incurred for the exchange, or settlement fees.
When an expense is paid for, the Exchanger using sales proceeds it reduces the amount that is sent to the Exchange account. If the expense is allowed to be paid with the proceeds it does not cause a problem, but if the expense is not allowed it causes a taxable event.
Exchange expenses allowed to be paid for with exchange funds: accommodator fees, document preparation fees, escrow fees, finders fees, legal fees, loan payoff, messenger fees, notary fees, processing fees, sales commissions and transfer taxes. (1031_exchange_expenses.pdf)
The following is a list of non-exchange expenses which should be paid for with outside funds, or it may be considered boot: homeowners dues, property liability insurance, property taxes, rent prorations, repairs, replacement property loan acquisition fees, termite treatment and utilities.
The most commonly utilized tax planning strategy available to investors is the Delayed Exchange, or Starker Exchange. A Delayed Exchange occurs when there is a time delay between the sale of the relinquished property and the purchase of the replacement property.
This exchange provides real estate investors up to 180 days to purchase a replacement property once their relinquished property has closed escrow. In order for this to be a valid exchange, a QI is required to facilitate the process. The Delayed Exchange occurs in three steps:
A Reverse Exchange occurs when the acquired replacement property occurs prior to the sale of the relinquished property. The Exchanger utilizes the Qualified Intermediary "QI" to purchase the replacement property and hold title while the Exchanger markets the relinquished property. The Reverse Exchange must be completed within 180 days, as done with the Delayed Exchange. There are two types of Reverse Exchanges: