CP29 How to defer multifamily capital gains taxes with 1031 exchanges with Alex Shandrovsky

Join me and my co-host, Vince Gethings, as we chat with Alex Shandrovsky about deferring capital gains taxes with 1031 Exchanges. Alex is a Business Development Representative of the Zero Energy Solutions. Prior to that, he was the CEO and founder of Lchaim Foods, and a qualified intermediary (QI) for Madison 1031. He is very knowledgeable in a lot of different industries. In this episode, Alex generously shares his time in educating the listeners about 1031 Exchange, DST, capital gains, and more!

What is a 1031 Exchange?

The 1031 Exchange is named for Section 1031 of the U.S. International Revenue Service’s tax code. This section states that if an investor has made a profit from a real estate investment, the capital gains tax can be deferred if they purchase another property of the same kind with an equal or greater value at a limited time. The International Revenue Service limits the time to 45 days after selling the primary property. Within 45 days, you must already have a replacement property. If you fail to close on a property at the given time limit, you will have to pay capital gains tax. A qualified Intermediary plays an important part in this exchange because this person will be responsible for holding the 1031 Exchange funds. If you want to defer paying capital gains taxes and leverage your rental properties, 1031 Exchange would be a great strategy to achieve these. This may sound easy for other people, but it can cause you more money when it is not done correctly.

Delaware Statutory Trust

“As a backup, if your 1031 Exchange fails, maybe you couldn’t name a property in 45 days or what reason fails; you can put it in a DST.” - Alex Shandrovsky.

A Delaware Statutory Trust (DST) is a legal entity created under the Delaware law, mostly used in real estate investments, allowing multiple investors to work together in pooling money for investment purposes. DST is a great vehicle, which can potentially provide you a stream of income. Some investors do not want to be a part of a DST because of the restrictions and limited control they may have depending on their agreement with respect to the other trustees. This can typically be up to 499 investors, with a minimum of $25,000 investment requirement.

Outline of the episode:

• [00:34] What exactly is a 1030 exchange expert or a qualified intermediary (QI)?

• [01:29] He built a multi-million dollar business serving companies like Airbnb, Google, and Facebook.

• [02:12] Alex was the CEO and founder of Lchaim Foods, a large catering company.

• [04:45] In real estate, you're essentially creating assets for yourself where you're creating multiple streams of income.

• [06:22] Tax Code 1031, the ability to reinvest the proceeds into an exchange property and defer capital gains.

• [10:43] The challenges of bringing in a 1031 investor to multifamily syndication.

• [17:37] Syndicators need to give a structured statement to their CPA or QI. There are different levels of aggressiveness on how your strategy should be.

• [20:25] The crucial role of a Qualified Intermediary in dealing with a 1031 Exchange.

• [22:36] Is Delaware Statutory Trust (DST) a safe option or a good investment?

• [27:08] The powerful combination of using Podcasts and personal meetups as tools for digital marketing.

• [30:19] 1031 in a simple definition, what can and can it not be used for?

• [34:00] What are the questions you should ask when making a 1031 deal?

• [36:50] Let everyone know at least a year in advance if you’re planning on selling the property.

• [41:07] Using cost segregation on another building to offset a capital gains tax. Give yourself as many options as possible.

• [45:39] Make sure to pick the right partners and qualified people to work with,

• [50:33] The best books for Alex that he recommended are: Getting the Love You Want, and Never Split the Difference

• [52:28] When is Alex’s book coming out? What are his side hustle projects?