The Power of 1031 Exchanges With Bernard Reisz, Real Finds Podcast #14 Transcript
Gordon Lamphere: Hi, I’m Gordon Lamphere, and welcome to the Real Finds Podcast, the podcast series where we interview key entrepreneurs, scientists, and activists who are shaping the commercial real estate industry and, as a result, our world. In today’s podcast, we’ll be speaking with Bernard Reisz. Bernard is founder and Chief Education Officer at ReSure LLC, which seeks to empower real estate investors with tax advice and financial tools to get more out of their assets. On the podcast, we discuss common real estate tax savings, cost segregation, the ins and outs of 1031 exchanges, and the future of the tax code. If you like saving money, it’s well worth a listen. Bernard, thank you so much for hopping on the podcast today. One of the things we like to start with is if you could tell us a little bit about yourself.
Bernard Reisz: Let’s do it. Gordon, first, thanks so much for hosting me today. It’s an honor and a pleasure to be here. The thoughtfulness with which you craft these podcasts is so evident. Regarding my background, I’m a CPA in terms of licensing, but more broadly, I’m a tax and financial nerd with regard to real estate and so many other asset classes and tools. The topics we typically cover are 1031 exchanges, cost segregation, and real estate retirement accounts. Of particular interest is how all these things come together, how they integrate with each other, and how they impact each investor, because no two investors are alike. These tools all have their place, but with all the powerful tax tools real estate has, everybody has their own tax profile. Are you investing as an LP? As a GP? Doing your own deals? Flipping? Buying and holding? Are you a real estate professional for tax purposes? There are so many great angles to explore and get beneath the surface on, and I’d love to do that today.
Gordon Lamphere: Let’s start with why you got into the tax game. There are a lot of interesting ways people get into their professions. Why tax?
Bernard Reisz: I’ll be frank, it wasn’t necessarily planned. People want to think they planned a hundred steps ahead. Absolutely not. But it is uniquely suited to what I actually love doing. Each of us loves doing different things, and thankfully so, because that way we can all complement each other and add value. Loving the tax code is not that common. Everybody loves saving money on taxes, but actually enjoying the tax code is a little more unique. One of the first projects I worked on was tax related, but it brought in so many aspects: employee benefits law, tax law, regulations, case law. The rest is history, as they say. Once you find something you have a passion for, you run with it.
Calculating the True ROI of a Tax Tool
Gordon Lamphere: I ran the tax law clinic in law school, and every year there would be two or three members of our massive tax class who enjoyed tax, and the professor would very quickly identify them and say, if you enjoy this, this is for you. For the rest of us, tax is all right, but I’d leave it to the professionals. So, leaving it to the professionals like yourself, what’s the biggest tax concern when you look at an individual real estate investor? Say a generic investor sits down with you and asks where they can find cost savings on a real estate investment.
Bernard Reisz: The beauty of real estate is that, more than many other industries, it has so many tax incentives and tools available. Where it gets thorny is understanding how those impact a particular individual. The business I’m in is providing these services, bridging the gap between tax expertise and tax tools. We’re a 1031 exchange service provider, we provide cost segregation services, and we provide real estate retirement account services. But working on a one-on-one basis, it’s really about seeing how all these things flow through to an individual’s tax return, so we can give people information they may not get elsewhere when they say, I want a cost segregation report. It’s not just about signing up and getting a document. There are many layers. No two cost segregation reports are alike, and no two investors are alike. You have to look at how this is actually going to impact you as an individual.
The first thing people have to understand is to calculate your true ROI on any particular real estate tax tool. Let’s use cost segregation. The heart of a cost segregation study is taking a lump-sum purchase price and allocating that cost to particular components. But there are many contextual factors in the deal and in the investor profile that drive the ultimate impact. Let’s start broadly and work our way in.
Suppose you get all those deductions. What’s the real value of that tax deduction? Say the cost segregation study gives you an additional $500,000 in tax deductions. You put that on your tax return. What does it actually do? If you have $500,000 of passive income to offset, and your cost segregation deduction comes in as a passive loss, beautiful. You just knocked out $500,000 of income. Alternatively, you have $500,000 of active income, and your cost segregation losses qualify the same way because you’re a real estate professional for tax purposes and you materially participated. Again, they net out.
Now, what’s the real value? Number one, what’s your true tax rate? Do you have other losses? What else is going on in your tax return? If you’re in the top federal bracket, you’ve got 37%. Number two, which state are you in? If you’re in a state with no state income tax, your ROI is lower. If you’re in New Jersey, California, or New York, on top of 37% you can add state-level savings, because your state wants that income too.
But let’s take it a step further. The biggest driver of cost segregation tax benefits has been bonus depreciation. However, many states with an income tax do not conform to federal bonus depreciation rules. Some states follow whatever Congress says at the federal level. Others conform or don’t conform to varying degrees. So the cost segregation study may say there are $500,000 of deductions here, but that’s using bonus depreciation, and your state or local taxing authority may not recognize it. The mileage you get from that deduction varies based on how it actually impacts your personal tax profile.
Who Actually Benefits From Cost Segregation
Gordon Lamphere: The biggest misconception I see in real estate, particularly on real estate Twitter or LinkedIn, where people discuss tax with no idea what they’re talking about, is which types of properties and investors are actually eligible for cost segregation. People will say, you invest in real estate, so you can get the benefits of cost segregation. Who actually benefits from this process?
Bernard Reisz: Awesome question. Different asset classes generate different levels of ROI, but technically every asset class is eligible for cost segregation. The question is who actually benefits from having that deduction. The most common misconception is when somebody gets those losses flowing through to their tax return as a passive loss, and passive losses cannot offset active income. This goes back to the 1986 tax reform, with tweaks over the subsequent years. Congress saw people investing in deals not because they wanted the ROI on the deal, but for the losses. The fact that Congress picked on it highlights where the benefit lies. There is a holy grail here, and that’s why Congress singled it out. For any type of activity, you have to meet the material participation tests for it to become active. Then, if you’re making money as a doctor or an attorney, the losses can be netted against that income. So we have to figure out which business activities you materially participate in and which you don’t.
Gordon Lamphere: Can I dive further into that? Can you explain what material participation is?
Bernard Reisz: Let’s do it. There are seven tests for material participation, and what Congress is looking for is activity you’re actually involved in. Which test you have to meet varies by circumstance. Most typically, you’re involved for 500 hours over the course of the year; or 100 hours and nobody else is involved more than you are; or you’re doing substantially all the activities with regard to that business, with no hard hour threshold. There are additional tests, some based on significant participation hours, some you can meet simply by having been a material participant in prior years. But typically we’re looking at 100 hours, substantially all, or 500 hours. And these hours are not hours spent reviewing financial statements or listening to awesome podcasts like this one. It has to be actual hands-on involvement in operations, not investor activities.
To bring it back to real estate: Congress initially said real estate is per se passive. There was no way to make real estate active, even if you met material participation requirements. Congress singled out real estate so that there was no way to use real estate losses to offset active income. That resulted in a substantial inequity, because you had real estate developers with components of their business generating rental income or loss, and they came back to Congress and said, for us, real estate rental is part of a broader, unified enterprise, so we shouldn’t be singled out so that losses from one component can’t offset income from another component of essentially the same pursuit. So Congress created real estate professional tax status.
If you fall within that bucket, real estate activities can be treated the same as any other activity, which means if you materially participate in that real estate activity, you can use those losses. It’s a two-step process. First, you have to qualify as a real estate professional. But even then, that does not mean you can claim losses from any real estate activity. You then have to meet the material participation standard, just as you would with any other business. Real estate professional status overcomes the presumption that real estate is passive, but you still have to actually make it active.
This is super complex tax stuff, with a lot of planning and strategy opportunities. To bring it back to what we deal with daily: when people come to us for retirement accounts, 1031 exchanges, or cost segregation, we don’t want to say, sure, sign on the dotted line and we’ll get you a cost seg study. We want people to understand whether they’re actually going to benefit come tax time. People get so excited, then they go to their CPA, and the CPA says, yes, you’ve got this great thing here, and it’s going to get carried forward, and you’re not actually going to benefit from it this year. So we want awareness. That’s where I came from as a CPA, seeing how many people get various tax tools but don’t really benefit from them. Ultimately it’s about providing value, not a cost seg study followed by a letdown. We can’t know everybody’s entire tax profile, but we want them to be able to say, let me check with my CPA. Is this going to benefit me? Yes? Game on. If not, they can make an informed decision about whether to do a 1031 exchange, a cost segregation study, or set up a retirement account for real estate investing.
What a 1031 Exchange Is
Gordon Lamphere: I know we could dive deeper into the woods, and as somebody who took some tax law courses I could at least put a toe in the water, but I’m not sure that’s what our listeners want. So let’s shift to one of the other topics you mentioned, the 1031 exchange. What is it, and how does it factor into the real estate game?
Bernard Reisz: A 1031 exchange is a way to defer taxes, very similar to cost segregation, and this is a good opportunity to talk about the true benefit of tax deductions and how to quantify them. Say you’ve got your tax deferral, and based on your tax profile we’ve quantified it: you’re saving $100,000 on your tax return this year. You would otherwise have paid $200,000; now you’re paying $100,000. The true power of a tax deduction is how you deploy it. You have $100,000 in your pocket. You can buy yourself a luxury watch, and some of those appreciate and become part of your investment portfolio. But the true value is reinvesting that $100,000, and within the real estate context, that’s really powerful. You can buy $100,000 of stocks and get, say, a 10% compound annual growth rate. That’s great. But with real estate, $100,000 of down equity can buy $400,000 of real estate. You get a huge multiplier effect. You take the tax savings, put them into the next deal, and benefit from compounding and appreciation on four times your tax savings. If you’re a long-term real estate investor, that is worth millions. You need the right inputs for each individual, but $100,000 saved on a deal, reinvested, and then cost segregation or a 1031 exchange on the next deal, over a decade, is easily worth millions of dollars.
So I like to say tax tools are not really tax tools. They’re financial tools. It’s not just about the beautiful number, $100,000 in your pocket. The real question is how many millions of dollars we can convert it into with the benefit of leverage and compounding over the next decade.
A 1031 exchange allows you to avoid paying taxes on the gain when you sell appreciated real estate. Let me simplify to illustrate.
Gordon Lamphere: It’s fine to simplify, but one important thing we want to be clear about is the basic requirements and timelines. There are a lot of misconceptions out there, particularly from folks on their first or second deal. We work with people all the time who say, I’d love to 1031 this, and we have to tell them there’s no way that’s going to happen. So if you could touch on that along with your simplified deal.
Bernard Reisz: Let’s say you’ve got a deal where the gain on sale would be a million dollars. Your basis is a million and you’re selling for two million, so you’ve got a million-dollar capital gain. Taxes on that, combined federal and state depending on where you are, are going to be somewhere between 20% and 40%, because you’re in the highest capital gains rate, plus state tax, plus net investment income tax. With a 1031 exchange, the idea is that you never really exited. You never got control of the money. The proceeds from the sale come to us, the 1031 exchange service provider. We hold them, you find another asset or assets to reinvest in, and the money goes into that. You’ve just avoided paying $200,000 to $400,000 in taxes, and you’ve got yourself an additional million dollars of real estate, because had you paid the taxes you’d be two to four hundred grand poorer with less for the down payment. In a nutshell, that’s what 1031 does.
Start Before Closing
Bernard Reisz: Now let’s talk timelines. Number one, you’d be amazed how many people come to us and say, I’ve been thinking about doing a 1031 exchange, I know this thing is out there, and I just sold my property yesterday with a million-dollar gain. I want to start an exchange.
Gordon Lamphere: It happens all the time, by the way.
Bernard Reisz: The key thing to understand is you have to start the exchange process before closing, ideally a couple of weeks before. If you’re at the closing table, we can still make it happen, but do us all a favor and get the ball rolling a couple of weeks ahead. What really happens in an exchange is that you assign your contract and your sales proceeds to us, the 1031 qualified intermediary. We receive the sales proceeds, so you never do. That is the key to avoiding taxes. The moment you’ve closed, it’s too late. It’s not even so much about the 45 and 180 days you’re probably thinking of. The key is that the exchange documents and process have to be initiated pre-closing. We’re happy to be involved as soon as you’re contemplating a sale, but the best time is once you’ve got a contract. Let’s talk and get an exchange document in place so we can give you the benefit of the 1031.
Gordon Lamphere: Apologies, we have a construction team working outside and it’s loud. That’s one of the troubles of real estate development. Something else I wanted to ask about, because there’s tremendous confusion around it, is the concept of like-kind property. What is a like-kind property, and how does it factor into the 1031 game?
Like-Kind Is Broader Than You Think
Bernard Reisz: Great question. Like-kind is way broader than folks realize. At a high level, almost everything that is real estate is like-kind to other real estate. Since the Trump tax reform, the like-kind topic became much simpler. Before that, it was way more complex. There’s no more like-kind for baseball players and no more like-kind for airplanes. It’s real estate. And within real estate, almost everything is like-kind to everything else. You can go from raw land to multifamily to self-storage, you name it. If it’s real estate, you can treat it as like-kind.
Where it gets really cool is that things we wouldn’t even think of as real estate are treated as real estate. Certain leasehold rights, a 30-year lease, that’s real estate. Mineral rights. There’s a whole range of licenses, easements, and rights that derive their value from underlying real property that may qualify as real estate. Most folks don’t need that level of detail. What’s important is that if in your mind it’s real estate, it’s most likely like-kind to anything else that in your mind is real estate, and it’s probably like-kind to a whole lot of things you wouldn’t believe are treated as real estate.
Gordon Lamphere: That blows my mind. I’ve done some extreme variations, properties to land or farmland or even an Airbnb unit, but I never thought about mineral rights, because we don’t have a whole lot of that in Northern Illinois. One follow-up: you mentioned 45 days and 180 days. How do those factor into the process?
The 45-Day and 180-Day Deadlines
Bernard Reisz: This is super important. These are the things investors hear about most often, but they’re crucial to understand, because this is driven by regulations, and regulations are very unforgiving. It’s a powerful tax tool, and we don’t want to fudge it over something that seems minor in our eyes.
There are 45 days and 180 days, and the key thing is that these two periods run concurrently. You do not have 180 plus 45. The total for a safe-harbor 1031 exchange is 180 days start to finish. That’s a common misconception. It can never go beyond 180 days.
What is the 45-day identification period? The regulations give us 180 days to do an exchange, but Congress wanted to narrow the opportunity to make sure you’re really staying in the deal. They understand real estate transactions take time, so you get 45 days to identify your replacement property, or close on it. You can certainly close within the 45 days. After day 45, you have a window to close, but to have a successful exchange, you have to be closing on a property you identified by day 45. If you haven’t acquired replacement property by day 45, you have to send us a designation notice identifying the properties you have your eye on as potential replacements. Then you get the balance of the 180 days to close. If you find a property you want to buy and it was not on the list you identified by day 45, it will not be treated as like-kind replacement property. The regulations say that to be like-kind, it must have been identified by day 45.
These deadlines do not get extended for holidays or weekends. They almost don’t get extended for anything. With your tax return, if the deadline falls on a weekend or holiday, the deadline moves to the next business day. 1031 deadlines do not follow that approach. When the 45 days are up, they’re up, even on a weekend or holiday. Your ID has to be in by midnight of day 45. And because every minute counts, the day of the initial closing is day zero. Day one is the day after the closing of your sale property. Then you have 45 days to either close on replacement property, which makes it automatically like-kind, or identify it by midnight of day 45, and then the rest of the exchange period to close.
Reverse Exchanges
Gordon Lamphere: One last thing I’d like to talk about is that we’ve recently been doing increasing numbers of reverse 1031s. What is a reverse 1031, and how does it work?
Bernard Reisz: I’m excited to talk about this. It’s a slightly more advanced topic.
Gordon Lamphere: That’s fine. We have an educated audience.
Bernard Reisz: Conceptually, I love breaking it down and getting past the rules to understand the concept at play. Typically when we talk about a 1031 exchange, we’re talking about a forward exchange: you sell a property, you have a gain, the money comes to the 1031 QI, and you find something else to buy. But what happens if you find a property you want to buy before you’ve sold the property with the gain? The sequence is reversed. Is there a way to get the benefit of a 1031 exchange even if you sell the property with the gain after acquiring your replacement property?
The IRS gave us a safe harbor for reverse exchanges, just as it did for forward exchanges. It can be structured in numerous ways, but here’s the typical concept. A reverse exchange uses something called an exchange accommodation titleholder, which is distinct from a qualified intermediary. We provide both services in an integrated way, but they’re really different, and sometimes these terms get used interchangeably. When we say exchange accommodation titleholder, we’re referring to something very distinct. The concept is that when you find that replacement property, rather than you taking title, we go on title. You haven’t actually acquired it. We hold it, which is different from a typical forward exchange, where we never go on title. That keeps you from being treated as having acquired it. Then you market the property you’re going to sell, and when it comes time to sell, we do an exchange with you on those two assets. That’s what we call an exchange-last reverse exchange. You can also have an exchange-first.
Now, the IRS safe harbor matters because in tax law, if we were treated as your agent, there goes your 1031 exchange. Even if we go on title, if there’s something that could be treated as agency, you wouldn’t get any of the benefits. In legal and tax matters we always look at the underlying substance, beyond how it’s papered. If we’re truly your agent, we haven’t achieved anything, even if we’ve gone on title. So the IRS said, if you follow these rules, for 1031 purposes we won’t treat the exchange accommodation titleholder, or EAT for short, as the agent of the taxpayer.
So in a reverse exchange, we go on title, acquire the replacement property, and hold it, essentially banking it for you while you go out and sell the property with the gain. When you’re ready to close on that sale, at that point we’re really doing a forward exchange. That’s the key concept: a reverse exchange is really a forward exchange with an exchange accommodation titleholder in the mix. Think of us, for tax purposes, as a third party holding your replacement property until you do the exchange when you’re actually ready to sell the property with the gain.
The Final Four
Gordon Lamphere: Very informative, and this is something we’re seeing more and more in the real estate business. The only bad news is I think we’re getting to the end of the podcast, which means two things. One, we definitely need to have you on again. Two, we’re getting into our Final Four, the fun topics that give us a little more insight into you and, ultimately, the real estate industry. The most important one is at the end. But the first, and it’s a topic I truly love: where do you think the future of real estate tax law is going? Five years, ten years out, is there something we should be looking for?
Bernard Reisz: Great question. I don’t have a crystal ball, so I’d rather say where I think it should go than where we’ll actually be. Taxation really is a mess.
Gordon Lamphere: You don’t say. Anyone who’s taken tax law would agree with you.
Bernard Reisz: It’s great for folks who master taxation, and it creates incredible opportunity, but it also creates incredible pitfalls. It really needs simplification. As a CPA and tax professional, in a personal way I may benefit from this mess, but frankly, it has to change. It has to be simplified, because the average taxpayer wants to do the right thing and be smart about their taxes, and the way the tax code is built makes that very difficult. There’s huge ROI in working with a tax professional, but from an administrative perspective, it really ought to be simplified.
Gordon Lamphere: You can’t get a stronger amen from me. I remember first sitting in our tax law course going through the code, and as somebody with a J.D., if I’m struggling to understand the tax law sometimes, you can only imagine what it’s like for the mom-and-pop shop. On to another topic I love dearly: Bernard, if you had to go back in time and give yourself one bit of advice leaving high school or college, what would it be?
Bernard Reisz: Be more proactive, more assertive, more confident. Believe in yourself and take action. It’s all in the same vein. As they say, 99% of opportunity is showing up. There is so much opportunity, and so many folks stay on the sidelines while they figure things out. Get in the game. If you get in the game and interact with people, you’ll learn so much more from being involved than from passive studying. Whatever you’re pursuing, be active, be proactive, be confident, be assertive. You’re amazing, you’ve got a lot to offer, and dive right in.
Gordon Lamphere: Amazing advice. To go along with that, there’s one way I think folks can learn outside the arena, and that’s books. I’m an avid reader; behind me is a small tidbit of my collection. What’s a book that’s influenced you, besides the tax code? I won’t give you that one.
Bernard Reisz: My favorite author is probably Nassim Nicholas Taleb. But if we want something a little easier reading, and not a five-part series, I’d go for The Drunkard’s Walk. The theme is similar: randomness and probability. It comes back to what we spoke about a moment ago. The authors don’t necessarily share Taleb’s exact outlook, but they’re working in the same disciplines. What randomness means is that opportunity strikes and you can’t predict everything, so you’ve got to get out there and roll the dice as many times as you can. Of course you need a logical approach, but it’s really about getting out there, because there’s so much opportunity. Roll the dice as many times as you can.
Gordon Lamphere: Wonderful advice. So we get to the last question, and this is the most important one on the podcast. The whole reason we created the podcast is to have in-depth, long-form conversations with great people. Who’s the next person we should bring on?
Bernard Reisz: There are a lot of great folks out there. What I love is working with superb tax advisors, because we understand each other and can very quickly figure out whether a client is going to benefit from these tools. Nine times out of ten, when they send somebody to us, we know it’s the right thing for them. Somebody I’d strongly suggest is Michael Plaks. Have you heard that name?
Gordon Lamphere: I haven’t. Tell me more about Michael.
Bernard Reisz: We’ve actually hosted him a couple of times. He’s an enrolled agent, so not a CPA, but when it comes to taxes, it’s ultimately about the knowledge. He’s an EA based in Texas, very sharp, very witty. He came over from the former Soviet Union in the early nineties, and he says it like it is about the way things are in the tax code and where you benefit. His focus is real estate investors, and he’s a master of his craft.
Gordon Lamphere: We’ll have to have him on. Bernard, thank you so much for hopping on the podcast today. The last question, also a critical one: what’s the best way for our listeners to reach out to you?
Bernard Reisz: We’ve got two places. There’s members.resurefinancial.com, which is purely educational content, organized and curated: 1031 exchange, cost segregation, self-directed retirement accounts, entity structuring, almost any real estate tax or financial topic, and it’s searchable. It’s a great resource. Then there’s resurefinancial.com, that’s R-E-S-U-R-E, where you can message us directly, and there’s a page to initiate services whenever the time is right for your own exchange, cost segregation study, or self-directed retirement account.
Gordon Lamphere: Awesome. Bernard, thank you so much for hopping on, and we’ve got to have you on again in the future.
Bernard Reisz: Gordon, it’s a pleasure and an honor. Thanks so much for hosting.
Gordon Lamphere: Thanks again to Bernard. We appreciate his insights. If you enjoyed the podcast, please give us a like, a five-star rating, or a review. Your comments, interactions, and subscriptions truly matter and help us continue to provide quality guests. You can follow us on YouTube, Spotify, or wherever you get your podcasts. I’m Gordon Lamphere with the Real Finds Podcast. Thank you for listening.
Van Vlissingen and Co. has been the Midwest’s oldest commercial real estate brokerage, development, and management firm since 1879, and today is independently ranked the #1 commercial real estate agency in Chicagoland, home to the #1 independently ranked agent, Gordon Lamphere, and the region’s #1 ranked commercial property management team. If you own, manage, or invest in energy-adjacent, mixed-use, or transit-oriented property across Lake County, the North Shore, the Northwest and O’Hare corridors, DuPage and the I-88 corridor, Will County, or southern Wisconsin’s Pleasant Prairie, Kenosha, and Racine markets, contact Van Vlissingen and Co. at 📞 847-634-2300 or 🌐 vvco.com. For a market-wide view of where these dynamics sit today, see our State of the Chicagoland Commercial Real Estate Market for Q3 2026.