​1031 Alternative With Guarantees
Copyright 2021 James B. Wootton

If you would sell your investment property if it were not for the capital gains tax, you might want to consider two possibilities for reducing and deferring the tax:

Use Section 1031 of the Internal Revenue Code to defer the tax until resale of the replacement property using these rules:

a. Replacement property should be of equal or greater value to the one being sold;
b. Replacement property must be identified within 45 days; and
c. Replacement property must be purchased within 180 days.

Here is another possible solution that might be just as good financially and a lot less headache:

About 20% of 1031 transactions fail because suitable replacement property cannot be located and identified within 45 days.

Because only a small part of the income from a Single Premium Immediate Annuity is taxable; and the balance is tax free due to the exclusionary factor under Section 72 of the Internal Revenue Code, which automatically applies to owners of SPIAs, the real estate seller can often accomplish the same or better financial results as compared with a 1031 transaction, even after failing to identify suitable replacement property within 45 days.

Depending on their income, the seller can go ahead and pay the capital gains tax and then move up to 85% into a single premium immediate annuity whereby only a small part of the income is taxable. This can often be just as good as a 1031 exchange in which all the future net operating income after a much-reduced depreciation deduction would have been taxable. With the SPIA, only a small part is taxable; so the end result can be comparable.

This also avoids the large and sometimes surprising tax liability imposed on the ultimate resale years after a 1031 transaction, resulting from the low basis carried forward from the original property.

The single premium immediate annuity payments would be guaranteed by a major insurance company. This is true mailbox money. No more headaches dealing with tenants, termites, and trash.

Whether you are thinking about selling a property and just want to better understand the 1031 exchange process and investment choices, have already sold your property with the proceeds currently being held by a Qualified Intermediary, or just want to understand the annuity process itself, I can help.

Jim Wootton
(614) 468-0198

Ohio insurance license # 9621
Ohio real estate license # 0700203286
Past President - Ohio Commercial Real Estate Exchangors

 About the Author

 As a commercial Realtor doing 1031 exchanges for more than 30 years, James B. Wootton has completed many millions of dollars of tax advantaged partial gift real estate transactions for his nonprofit and church real estate clientele and has developed a particular expertise with it. Mr. Wootton has written a book on that subject, which can be viewed in its entirety, for free, online at www.books.google.com by entering the title which is “Real Estate Gift”. He was the inventor of United States patent number 8,175,951, which automatically computes the tax ramifications of a charitable bargain sale of property to a charity. He is also licensed to sell conventional annuities.

Biography: James B. (Jim) Wootton holds a Bachelor of Science degree in Business Administration from the Finance Department of the College of Administrative Sciences at The Ohio State University. Since his graduation he has pursued the study of economics with Harvard University Extension School of Cambridge, Massachusetts. He is a graduate of the Realtors Institute.  

Engaged in commercial real estate brokerage since 1973, He has negotiated many major property transactions for churches and other nonprofit organizations, including some of the larger transactions in the State of Ohio.

In 1975 he became licensed to sell life insurance with Bankers Life of Iowa, and is today licensed to sell life and health insurance and annuities in the State of Ohio.

Prior to Establishing Standard Realtors in 1999, Mr. Wootton was an investment specialist for RE/MAX Commercial and the commercial division of Century 21 Joe Walker. In this position, he counseled buyers, sellers, landlords, tenants and investors on how to best realize their long-term real estate goals. He developed an extensive knowledge of the market, inclusive of all product types, such as investment, industrial, retail, office, multi-family and vacant land. He was responsible for managing external professional resources including sales & leasing agents, construction project managers, property managers, attorneys, architects, and engineers during the development, acquisition and disposition of real estate for his clients.

Mr. Wootton is a member of the Ohio Business Brokers Association (OBBA), and for nine years was a registered representative with the N.A.S.D. As a business broker he arranged the sale of Workwell Company NKA Volk Protective Products, a leading manufacturer of gloves, to a company headed by Donald Kelley, former chairman of Beatrice Foods (NYSE). Mr. Wootton, acting as a finder in cooperation with First Boston Corporation, initiated two American Stock Exchange company mergers, both for Snyder Oil Partners, now a division of Devon Energy Corporation (NYSE:DVN). 

Jim served for more than 20 years as a board member of both The Kiwanis Club of German Village and Teen Challenge of Columbus. Since 1999 he has served as President and member of the Board of Trustees of American Community Fund. 

He was president of the Columbus Real Estate Exchangers and rose to become president of the statewide Ohio Commercial Realtors Exchange Association. He is a member of the Columbus, Ohio, and National Associations of Realtors, Columbus Commercial Industrial Investment Realtors, and the Ohio Commercial Real Estate Exchangers.

Jim's areas of real estate expertise are: Arranging major gifts of real property for his nonprofit and church real estate clients, obtaining seller financing for investment property buyers, Site selection, Investment Acquisition/Disposition, 1031 Exchange, and Auction.

Existing and past clients include: First Boston Corporation, Guardian Television Network, Reliance Funding Corporation, Evangelical Lutheran Church in America, General Council of the Assemblies of God, and many other individual and institutional investors.

James B. Wootton, Standard Company LLC and its affiliates may not and do not give tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.