What is an Exchange?

§1031 tax deferred exchanges are commonly known as Starker Exchanges, named after a 1979 court decision. The Starker family owned timberland in Oregon, which the Crown Zellerbach Company wanted to buy. The Starkers agreed to sell, with the caveat that Crown Zellerbach would deliver the deed(s) on "to be named" property when selected. This transaction was the impetus for IRS rulings on such "exchanges."

A §1031 tax deferred exchange makes it possible to reinvest the full amount of a capital gain, rather than just the "after tax" amount, in another property. For example:

An investor has a $200,000 capital gain and, after $70,000 in taxes, has $130,000 to reinvest in another property. Assuming a 25% down payment and a 75% loan-to-value ratio, the seller can purchase a $520,000 new property.
Under an exchange, however, this same investor can reinvest the entire $200,000 of equity in the purchase of $800,000 in real estate, assuming the same down payment and loan-to-value ratios.

The precise orchestration of a tax deferred exchange is crucial to accomplishing your real estate investment goals.

John Kennedy is well versed in the details of the exchange process. Over 90% of his business since 1990 has been assisting clients with the selling and buying aspects of §1031 tax deferred exchanges. Countless transaction hours in this niche of real estate have provided Pacific Real Estate Investments ways to hedge our clients' successes by using closing extensions, earnest money and conducting pre due diligence.

Pacific Real Estate Investments, LLC
15280 NW Central Drive, Suite 202-10 Portland, OR 97229
503.439.8924 phone 503.217.6072 fax
kennedy@pacificinv.com
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