1/5/26 Navigating Charitable Deductions, Alimony Changes & 1031 Exchanges

The Moneywise Radio Show and Podcast Monday, January 5th BE MONEYWISE. Moneywise Wealth Management I "The Moneywise Radio Show & Podcast" call: 661-847-1000 text in anytime: 661-396-1000 website: www. MoneywiseGuys.com facebook: Moneywise_Wealth_Management LinkedIn: Moneywise_Wealth_Management Guest: Karen Clemans, CES®, Business Development Director for Accruit website: www.accruit.com/ The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Karen Clemans and their company are not affiliated with nor endorsed by LPL Financial or Moneywise Wealth Management].

• 0:00Speaker 00

  From the second floor of the historic Woolworths Building in downtown Bakersfield, here is Money Wise. Call or text into the show 661-396-1000.

• 0:30Speaker 01

  Securities offered through LPL Financial, member FINRA, SIPC. Investment advisory services offered through LPL Financial. LPL Financial and Money Wise Wealth Management are independently owned and operated.

• 0:40Speaker 00

  Here is Money Wise.

• 0:43Speaker 02

  And welcome to the Money Wise Show. We are live from the second floor of the historic Woolworths Building in downtown Bakersfield. For the next hour, you are on KGO Money Talk, 1230 a.m., 101.1 FM, and always streaming at MoneyWiseGuys.com. You can call or text into the show 24 hours a day at 661-396-1000. We're your hosts. I'm Sharad Waite and?

• 1:08Speaker 03

  Sammy Abiyawie.

• 1:09Speaker 02

  Hey Sammy, we're back.

• 1:11Speaker 03

  Happy New Year.

• 1:12Speaker 02

  Happy New Year to you. Holy cow, we made it. We made it through 2025 and it looks like 2026 is starting out all right.

• 1:21Speaker 03

  Very much all right, in my opinion. I mean, we've got a bunch of stuff going on around the world, here locally in America. So I'm very excited.

• 1:30Speaker 02

  Yeah, I want to maybe talk about some of the things that happened over the weekend, including the capture of Maduro from Venezuela. And of course, you and I were both thinking, you know, what is this? Knowing we're going to have the show today, what is this going to mean for global markets? And spoiler alert, it's kind of shrugging it off. Markets aren't too concerned about it.

• 1:55Speaker 03

  I think we've seen this before too. And like early 2025, you and I talked about this after President Trump took office and a bunch of the tariffs when took effect. And still the market did not react. And I think that there's a concept or there's a word you used somewhere during 2025. I don't know what it was. I'll have to find it. Where the market is like, okay.

• 2:21Speaker 03

  Great news, but we're staying focused on the actual market.

• 2:25Speaker 02

  Yeah, yeah, it is something to be said about not making knee jerk reactions to some major headline. But by the time an investor, average investor sees the headline, it's you're too late. You know, too late for getting ahead of it. Now you're really gambling on how the market's going to react. I mean, I mean, I've learned this many, many years ago. Don't, don't count out the market. Don't, you know, don't be too confident about what you think is going to happen because of whatever geopolitical event is going on. The markets are going to kind of do what they're going to do. And, um, you know, investors in general are pretty confident about the long-term prospects. So they're able to shrug off some of these crazy events that happen.

• 3:10Speaker 02

  We've got some really great listener questions.

• 3:12Speaker 03

  Yes, we do.

• 3:13Speaker 02

  Coming our way with really adds to the show. Let's start the show out that way, Sammy.

• 3:18Speaker 03

  Yeah, sure. How can people make sure that donations actually benefit them at tax time and not just in spirit? I know it sounds bad, but I'm unsure how charitable donations changed from 2024 to 2025 and even 25 to going into 26.

• 3:34Speaker 02

  Yeah, great question. I want to highlight sort of what did change because there were some changes that took place this year, starting this year. So when you file your taxes in early 2027, it's going to be different than how you're filing your taxes this year for 2025. So through the tax year of 2025, which again, people are going to be filing that return here before, uh, April, middle of April. Charitable donations are deductible only if you itemize. So that this is a big, this is a big change that took place coming into 2026.

• 4:12Speaker 02

  In 2025, if you gave a charitable donation, you do not get a tax deduction for that donation unless you are itemizing your deductions. So that means you're going, you have more. Things to deduct on your tax return than what the standard deduction is or was for 2025. Of course, remember that big changes through the tax code were that now are going to be implemented in 2026 is that non-itemizers can now deduct at least for single people up to $1,000 or $2,000 for married filing jointly for cash donations, even if you don't itemize. That's going to be great.

• 4:56Speaker 02

  That's going to be good news for a lot of people who weren't getting really a tax benefit for their charitable contribution. That's the biggest change that happened.

• 5:07Speaker 03

  I think that's huge, Sherrod, and especially in light of what happened last year, a lot of nonprofit organizations lost funding. So hopefully this rule change incentivizes people to donate more because they're going to benefit from it when it comes to tax time.

• 5:25Speaker 02

  Yeah. Yeah. It's definitely, should be better for charities and churches and things like that for people to be able to donate to them who previously did not do it with, and didn't get a tax benefit. Now they can. Now they can get a tax benefit. But there is a new floor for itemizers. So that's people who are going, who have enough deductions above and beyond that standard deduction. Only charitable donations above 0.5% of your annual adjusted gross income are allowed. That means that the first chunk of your giving doesn't even count towards any deduction at all.

• 6:07Speaker 02

  There is a change there, whereas previously deduction limits depended on the type of gift that you were giving and who the recipient was. Generally, it was up to about 60% of your adjusted gross income for gifts to public charities. Now that that formula has changed somewhat. So again, it just for charitable, only for people who are itemizing, only charitable deductions above 0.5% of your adjusted gross income will be allowed. And there is a cap on value for high earners. So if you're in the top tax bracket, the tax benefit per dollar donated is effectively limited to about 35% instead of 37%. So there are some slight changes there.

• 6:52Speaker 02

  I think part of this question too, Sammy, might be Not necessarily, how do I make sure I'm getting my tax benefit? But how do I know that I'm giving to the, to a charity that it actually

• 7:04Speaker 03

  Correct.

• 7:05Speaker 02

  Something?

• 7:06Speaker 03

  Yes.

• 7:07Speaker 02

  Did you interpret it that way?

• 7:08Speaker 03

  Yeah, I, I, I, what I read is, hey, I want to give money, but I want to also make sure that I'm giving money to, to an organization where eventually comes to tax time of benefit to. Okay, so there are certain organizations you can donate to that have that tax exempt status that allows you to deduct your donation.

• 7:33Speaker 02

  Yeah.

• 7:33Speaker 03

  And that's the 501(c)(3) organization that could be churches, private schools at times, public charities, whatever that status, organizations that have that 501(c)(3), those to me are the organizations that would qualify you for tax deductions eventually.

• 7:53Speaker 02

  You know, giving to individuals or political groups or most private clubs, that doesn't as a charitable contribution, even if they're doing charitable work, it has to be that 501(c)(3). People that are giving to charities and you're putting this on your taxes and you're going to, you're going to be using this as part of your return, certainly want to keep your receipts, keep your records, get a written acknowledgement, especially if it's a large gift. And, and then if you're, if you're reporting non-cash gifts, so this is, I do this every year when I clean out my garage, I, I, I take a bunch of, of, of goods to Goodwill or, or, or one of these, you know, charities. You have to file a form if, if that value is over $500. You have to file a tax form.

• 8:38Speaker 02

  If it's under $500, then that's okay. And if they're giving an item to, to somebody that exceeds $5,000, now you need to have a qualified appraisal. So just kind of a little, little side note there. And also I think if you're looking at charities, there are some, there's public websites that are available that allow individuals to find out more about the financial efficiencies and governance of the charity that they're donating to.

• 9:05Speaker 02

  I think this is incredibly important to know. There are some charities out there that have a history of, say, you know, the high 80s or 90% of their costs are going to admit of the donations go to administrative costs. I've got an issue with that. It doesn't.

• 9:20Speaker 03

  Yeah, it's basically you are starting on a nonprofit so you can make money. Pay yourself as a CEO, Chief Operating Officer, whatever. I do have a problem with that as well. If I'm donating, I'm donating to a cause, not just an organization, in my opinion.

• 9:36Speaker 02

  Yeah, yeah. And you can, some of these websites that you can check are Charity Navigator or GuideStar. So if you Google Charity Navigator or GuideStar, there's even a Better Business Bureau, Wise Giving Alliance, that has some information on their website, too. So I think it's a good idea just to make sure you're doing some investigative work into the charity that you're donating to.

• 9:58Speaker 03

  And for us to figure out if they are qualified, the IRS has a web, their website, they have a way for us to figure out if the organization is 501(c)(3) or not, correct?

• 10:10Speaker 02

  Oh, that's nice. Yeah. Yeah, that's great. That's great. Next question.

• 10:16Speaker 03

  If someone here in Bakersfield already has a 401k, how would a Trump-style account fit into the picture? Would it replace what we already have, or will it simply be another bucket?

• 10:26Speaker 02

  It's another bucket. I think that's the short answer. Remember that the Trump account is for Americans under the age of 18. So that means, you know, most people that are contributing to a 401k are adults. They're, they're over 18. You can have a retirement account and a Trump-style account. It doesn't necessarily exclude an individual if they're part of it, that if they open up a Trump account. But it doesn't really, doesn't really impact your 401k.

• 11:05Speaker 02

  I think it's important also to note that the, the earliest as of today that you can open up a Trump account is, I believe, in July of this year. So it's, you know, this, we don't, we have a ways to go before this is even going to be an actual thing. I, I still have some, some questions myself about how this is going to be administered. So July 4th of 2026 is, is what the law says when accounts will go live. And then, um, and then what the, the benefit for individuals is that you can contribute

• 11:47Speaker 02

  up to $5,000 a year and employers can contribute up to $2,500 per year to the child's account without it counting as a taxable income for the employee. There's no earned income requirement and the federal government is going to cede the money. If the child is born between January 1st of 2025 to December 31st of 2028 and is a US citizen with a social, social security number, the government is going to deposit a thousand dollars into that account as part of the pilot program. This is also not income based. So really it's like anybody could do it, which I would recommend people do it.

• 12:29Speaker 02

  Like this free, anytime the government's offering you some free money, it's kind of a way for you to get back some of that tax dollars that you've paid into. So I'd, I'd recommend people, uh, you know,

• 12:38Speaker 03

  And the $5,000, uh, share is that pre-tax if you want to contribute?

• 12:44Speaker 02

  No, no, no, this is all after tax. That's the other big difference between this and, and a 401k is that the, the Trump account is, is for, you know, after tax. So that's, that's a big difference with 401k. It's through your employer, it comes out before payroll. So there's some, some benefits there. Website is trumpaccounts.gov. That's the online system. I don't even know if it's live yet, but that will be where people can go and sign up for their Trump account. It's only for minors under the age of 18 at the end of the calendar year that you set it up. So, great question.

• 13:24Speaker 03

  Yeah, very good question. We have another one, Sherrod.

• 13:26Speaker 02

  Yeah, let's go.

• 13:27Speaker 03

  This may be from left field, but can you explain the alimony changes when it comes to the new tax laws? Happy New Year, guys. Thank you.

• 13:36Speaker 02

  Yes, the tax law has changed a while ago in terms of alimony, and it changed on a federal level. So, what our listeners are probably thinking of is back in 2019, or before January of 2019, the spouse that's paying alimony could deduct those payments on their federal tax return. That means the spouse receiving the alimony had to report it as taxable income. So, this used to be a benefit for the payer's tax bill and, you know, to push that tax burden on to the recipient. However, there was a change that happened that took effect after January 1st of 2019. And that is there is no deduction for the spouse who pays alimony,

• 14:21Speaker 02

  and there's no taxable income for the spouse who receives alimony. So, and again, we're talking about on the federal level. So, it's essentially tax neutral at the federal level. The other side gets a break for that, for that burden. This is on the federal level, but on the state level, every state's a little different. And in California, unlike the federal law, California did not adopt the 2019 federal alimony changes. And, and so, at least since, since this year, as of this year, the payer of alimony can potentially deduct those alimony payments from their California taxable income on their state tax return,

• 15:04Speaker 02

  just like how they used to on their old federal, under the old federal rules. And then the recipient must report that alimony income that they receive as taxable income on their state tax return. So, that's really interesting, you know, states still have some leeway on how they can count that taxation, but, yeah.

• 15:23Speaker 03

  And so, it sounds like an anti-divorce rule.

• 15:26Speaker 02

  Oh, man. Yeah, you want to, you want to get yourself in trouble financially, go through a divorce. That'll do it quick.

• 15:34Speaker 03

  Uh, we have one more. Do you have time?

• 15:37Speaker 02

  Yeah, let's do it.

• 15:37Speaker 03

  Yeah. Hey, guys, do you know when S corp returns are due? Happy New Year. I'm looking forward to getting down for a burger and shake. Place looks great.

• 15:47Speaker 02

  Uh, thank you. Yeah, thanks for the compliment.

• 15:50Speaker 03

  You know what's better than the place? It's a burger. The burger is good, too.

• 15:54Speaker 02

  Oh, my gosh.

• 15:55Speaker 03

  We have a great place, but we have a really good burger.

• 15:57Speaker 02

  A burger is super good. Come down to the Woolworths Luncheonette. We're open. We're open. Uh, so the, the tax deadline for S corp's March 15th. March 15th. That throws people off a little bit because it's, uh, you know, a month before our personal returns are due. There isn't, there is a distinguished, there's a difference if you are, if your corporation is not run on a calendar year, which most are, you know, January 1st to December 31st, but some corporations have their, they to end their tax year at a different time of the year, whatever month that is, for whatever purpose that, that, that their business runs.

• 16:40Speaker 02

  And that that's the case that's due on the 15th day of the third month after the end of your tax year. So whatever your corporate tax year is, you, you, uh, you need to file that, uh, 1120S. That's the S Corporation Income Tax Return on the 15th day of the third month after the end of your tax year. For most of us, that's March 15th. Great questions. Keep the questions coming our way. We love it. It adds so much to the show. And we're going to do this. We take our first break of the day and we come back. We're really excited to be joined by our guest Karen Clemens, longtime guest of the show. She's Business Development Director for Acruit and she is also a CES,

• 17:24Speaker 02

  which is a Certified Exchange Specialist. She's got years of experience of talking and, and presenting on 1031 exchanges and, and real estate deals. We're going to be joined by Karen Clemens when we come back. Don't go anywhere.

• 17:40Speaker 00

  Money Wise Wealth Management is the only locally owned in the Firm that uses a comprehensive wealth tax and estate approach, working closely with a highly trusted CPA and attorney for information on how MoneyWise can help you invest and plan for your future. Call 661-847-1000. That's 661-847-1000.

• 18:09Speaker 02

  And welcome back to Money Wise Show. We're your hosts today. I'm Sharad here with Sammy. We're joined now by our guest Karen Clemmons. She's the Business Development Director for Acuit, longtime friend of the show. Karen, welcome to the show. Welcome back.

• 18:22Speaker 04

  Thank you, Sharad and Sammy for having me and happy 2026.

• 18:26Speaker 02

  Oh, it's good having you on. You always do a good job of explaining sometimes what could be a very confusing and complicated code in the IRS tax code that has the numbers 1031 behind it. I think maybe, maybe you can kind of explain like what that, what's a, what's a 1031?

• 18:48Speaker 04

  A 1031 exchange is utilized by somebody that owns investment property. Now, that can mean a lot of things. It could be a condo that they rent out. It could be a commercial building. It could be a grocery store building. It could be a Starbucks building. It could be a lot of different things. But should they decide that they want to sell it, they would, absent a 1031 exchange, as you know, have to pay taxes on that. And, and not only do they pay gain capital gains tax, but they also would pay depreciation, recapture, state taxes. So it can be, end up

• 19:28Speaker 04

  being a lot of money. If they do want to buy a replacement property by using a 1031 exchange, they can defer the payment of all taxes if they do it in the correct way.

• 19:40Speaker 02

  Yeah, this is a huge, huge benefit in the tax code that I think a lot, there's many people that aren't aware of it. Think of this for our listeners.

• 19:52Speaker 02

  Oftentimes, if you've done any investing outside of your retirement account, you get that 1099 tax form at the end of the year that shows how much gains you may have realized. And you gotta pay that and then you move on, right? You had an asset or an investment, it appreciated an asset in value. You pay the difference on that, on that value and those gains. But I think it might be a surprise to some people to know that that's the same thing that can happen. There's a benefit if you have assets like real estate that has appreciated and now you want to sell it.

• 20:35Speaker 02

  There is a way, and we'll get into some of the caveats, but there's a way to take that and not have to pay, yet at least, not have to pay the gains, the taxes on those gains, right?

• 20:49Speaker 04

  That is correct, Sherrod. A lot of people say, "Let's just go ahead and kick that can down the road." So what people mean when they say that is you can continue to sell and buy and sell and buy and use 1031 exchanges. For instance, let's say that you're a young investor and you buy a single-family residence and it appreciates in value and you see a duplex in another neighborhood. You want to buy that duplex because you think it's going to bring in more income on a month-to-month basis. And also, it's going to appreciate even more in value. So you can 1031 exchange out of that single-family residence into that duplex.

• 21:34Speaker 04

  And then you're making more money on a month-over-month basis and you're getting the appreciation. You just continue to do that until you decide you're happy with whatever the asset is. Or you could sell and buy multiple assets. You don't have to only buy one.

• 21:52Speaker 02

  And so, you know, you mentioned kicking the can down the road. So you're delaying the taxes that you would have to pay on that. At what point would somebody have to pay taxes? Like, can they just do 1031 forever? And what does that mean for their family, for example?

• 22:12Speaker 04

  That's a very, very good question, Sherrod. If a family member has done multiple 1031 exchanges and they pass away, then the family, under the current tax code, does receive what's called a step up in basis. And what that means is that whatever the value of the assets are at that time, that's what the family inherits. They do not inherit the basis. Let's say that, that the father is the one that passed away and he's held this property for more than 30 years. So the property is completely depreciated.

• 22:52Speaker 04

  That means that if he passes away, the family inherits, let's just say at a million dollar value, and no taxes would be owed should they decide to sell at that time.

• 23:03Speaker 02

  Yeah, I mean, that, that a huge benefit, that step up in the tax basis. Oftentimes, somebody is, is looking at maybe upgrading a, an investment property or diversifying their investment property into something else, but they're not really wanting to get out of it. They're just wanting to kind of move it. We see this a lot here in our area with farm, with farm property and farmland, right? You have a, a family that's been running a farm a long time. They're ready to retire. They're ready to hang it up. But they don't want to have to realize all of those taxes. So this is part of the tax code that can allow them to say, we're going to defer some of those taxes for now,

• 23:43Speaker 02

  put it into another property. Maybe we realize some of the taxes and keep, keep some of that. But gives, it gives, it gives people some flexibility in their financial plan.

• 23:56Speaker 04

  It really does. And I do always think about the farmers in this situation because, you know, a lot of farmers have been farming for generations back. I can tell you a story about a family that was a dairy farmer for probably four generations. And then they decided to get out of the dairy business. They left Chino, came to the Central Valley, bought pistachios and almonds.

• 24:25Speaker 04

  A lot of them. And last year, they decided, uh, there were still three generations that were working on the farm. Mom and dad were about eighty-three. And the youngest ones were in their later twenties and they decided as a family that they no longer wanted to farm. It was just with the water situation and just everything, they just no longer wanted to farm. So what they did is rather than sell and pay those gains, which would have been huge because the, the total sales price was forty-six million dollars. You can imagine how much tax they would have paid on that. So they went ahead, sold, and they purchased entirely a passive income product,

• 25:10Speaker 04

  which we can explain what that means. But it's basically a, a flow of income for the family as long as they hold that property.

• 25:21Speaker 02

  Yeah, so i- i- i- is this something that somebody can do with any kind of property? Are there, are there specific properties that don't qualify?

• 25:31Speaker 04

  Well, it has to be considered real property as defined by the IRS. And you know, the IRS can be a, a little crazy sometimes in what they say is real property. Like air rights are real property, cellphone

• 25:47Speaker 02

  Air rights. Oh, oh, yeah, right, right.

• 25:50Speaker 04

  Cellphone rights.

• 25:52Speaker 02

  Yeah.

• 25:52Speaker 04

  The towers, those are considered real property. Uh, as I mentioned, the passive income products, uh, like oil and gas, that, that can be considered real property. Longtime leases, as long as they're longer than thirty years, then they're considered real property. And then there's, you know, anything from, like I said, condo, doesn't matter what part of the United States it's in. It could even be in, uh, the, the Caribbean, so long as it's a US territory. Uh, and, and just because somebody sells a condo, they, they don't have to buy a condo, they can buy whatever they want, so long as it is considered real property by the Internal Revenue Service.

• 26:37Speaker 02

  So when would a 1031 not make sense? When would somebody go, ah, we don't need to do this?

• 26:43Speaker 04

  Well, actually, I'm talking to a family right now that are selling a property for $450,000 in Bakersfield. They plan on buying a property for $295,000 in Houston. So the rule of thumb, because I am not a CPA or a tax advisor, so I can give you a rule of thumb. The rule of thumb is you want to buy for equal or greater value. In this instance, they are choosing to buy down in value. So my recommendation to them was, please go talk to your CPA and make sure that you are aware of what the tax consequences are going to be when you buy down. And if that's acceptable to them, then great.

• 27:28Speaker 04

  But in some instances, if you buy down enough, then you're going to pay the full tax anyway, Sherrod. So why would you do a 1031 exchange unless you just really wanted that replacement property?

• 27:43Speaker 02

  Yeah, I guess another way of saying that is somebody who is just getting out of real property altogether. They say they've got a farm and they say, you know what? We're done. We're not putting it in any other real estate or any other like kind of property. We're just going to pay the taxes on it and move on. That's, you know, that happens.

• 28:03Speaker 04

  Well, that happens a lot and some of our farmers, I did an exchange recently where the farmer had lived on the property. But he also had a lot of acreage, so he sold for $3 million. But he was able to take out his $500,000 tax-free and then put the rest into the exchange. So there's a lot of ways to do it.

• 28:27Speaker 03

  Was that through an appraisal or how was the evaluation done in that case to separate the 500 from the rest of the 3 million?

• 28:35Speaker 04

  You know what? That is between the exchanger and their CPA on how they value those types of things. I am what's called a qualified intermediary, which means I'm a disinterested party that mainly holds the funds so that the exchanger does not have actual or constructive receipt of the funds. It is not up to me to question their valuations. Again, I am always grateful for people to partner with their CPA and other financial advisors. That is one of the questions I always ask. I ask their name, their, their phone number, their email, and who is your CPA? And have you told them about this exchange?

• 29:18Speaker 04

  Because as Sherid mentioned in the beginning of this conversation, it could be a very complicated issue. And I don't want the taxpayer to file their income taxes and then find out that they owe money that they weren't expecting to owe, because that's, that's never fun.

• 29:37Speaker 03

  And Karen, can you shed some light on properties that have debt on them?

• 29:44Speaker 04

  Of course.

• 29:44Speaker 03

  And the investor sells, what are some of the rules in that case?

• 29:50Speaker 04

  Well, let's talk again about that rule of thumb. So the first rule of thumb, buy for equal or greater value. Second rule of thumb, put the net proceeds from the sale of the relinquished property, the property you're selling, into the exchange account. Spend all of the exchange funds on the replacement property. And if there was debt against the property that you sold, you want to make sure that you're going to replace that debt in equal or greater value. And that can be done by another loan, or it can be done by outside cash. If you happen to have cash in your bank account or, you know, your other, other assets where you're going to use money rather than get a loan, you can do that as well.

• 30:35Speaker 04

  So let's talk about this. If it was a $500,000 sale and they had a $200,000 loan, then net proceeds come Come into the exchange, there's gonna be cost of sale. So it's not as easy as saying three hundred thousand comes into the exchange and two hundred thousand got paid off to the bank. It's gonna be a lesser amount. But when they go to buy their replacement property, if they just remember, I've got to spend all those exchange funds. And then if I've got to get a loan or use cash to replace that two hundred thousand. Then that should result in a fully taxed deferred exchange.

• 31:15Speaker 03

  On, on, on the timing rules, Karen, can you shed some light on that too as far as just like the identification time as well as the time to close, whenever you sold, you sell the property?

• 31:30Speaker 04

  Of course. So the day that you sell the property, that is the day that your exchange begins. You have forty five days from that date to identify your replacement property. And then another one hundred and thirty five days in which to close. So that's why you often hear, oh, it's six months, you have six months. But we really should talk about days in calendar days. Now, identifying is not as scary as it sounds. It's just putting down the addresses that you would like to use the exchange to purchase. And then that becomes your shopping list. Unfortunately, after midnight on that forty fifth day, you may not change your shopping list.

• 32:15Speaker 04

  Even if you find something that you like better. The only option would be at that point would be to just fail the exchange and hope that you can buy that better property later. But the money is stuck in the exchange for the full hundred and eighty days. After you identify, if you don't spend it on the properties that you identified. Does that make sense?

• 32:40Speaker 03

  Yeah, I was gonna just, on your role throughout this process is you're holding people accountable towards those properties as well as the days. Is that correct, Karen?

• 32:51Speaker 04

  That is correct. So let's say, for instance, Sammy, you do that exchange on that $500,000 sale, and I end up with, say, $250,000 in the account. And you tell me on, you know, day 45, "Okay, I'm gonna go and buy 405 Plato Court, and I'm gonna buy it for, you know, $350,000." So I'm gonna caution you, and I'm gonna say, "Please go talk to your CPA about the tax ramifications of buying a house for lesser value." So you go, let's say it was day 40. So then you talk to your CPA, you come back to me and you say, "Okay, I don't want to have to owe taxes. I'm gonna find something for 500."

• 33:35Speaker 04

  And you identify something for 500. Okay, now, we get to day 55, and you close escrow on that $500,000 property. Then your exchange is done. We don't have to wait that full 180 days anymore. You bought what you said you were gonna buy, and your exchange is completed.

• 34:00Speaker 02

  There's a lot of, it sounds like, uh, gotchas, or where, you know, where deals could go south. And it also sounds like the IRS doesn't allow somebody to, or do they allow somebody to sell a property, and then they themselves take possession of the proceeds of that sale, and then they themselves wait that 45 days or that six-month window? That's not allowed. It has to go into like an escrow or an intermediary place.

• 34:32Speaker 04

  It does. And it's actually written into the Section 1031 of the code, where it says that in order to meet the safe harbor standards, you must use a qualified intermediary. You must not take actual or constructive receipt of the funds.

• 34:51Speaker 04

  And you you must buy your replacement property after identifying it on the forty fifth day on or before the conclusion of the hundred and eightieth day. I can tell you a story. When I first started this career, an elderly gentleman came into my office and he had a check that he had received from escrow. And he said, I'd like to open an exchange. Here is the check. And I said, well, where did this check come from? He said, oh, escrow closed today and they gave me the check. So here you are. Please open an exchange. And unfortunately, even though the check was not cashed, that is actual receipt of the funds.

• 35:32Speaker 04

  The code also requires that a contract be entered before the close of escrow between the exchanger and the qualified intermediary, and it requires notice to all parties of the transaction. So there was no way that we could notify the person that purchased his property that he was doing an exchange when he was in fact, holding the money. So there are a lot of gotchas. That's why I think it's very important that you work with somebody that actually is reputable, has a high level of integrity. I would, for myself, pick a certified exchange specialist only because anybody that has

• 36:16Speaker 04

  that designation has taken a rigorous test, the only one in the country. And it it asks every question that you could possibly believe, even tax questions, which surprised me because we're not allowed to give tax advice, yet they seem to think we need to know the tax code. So, okay, I passed the test. I know enough to be dangerous, but I do think that it's really important. And, you know, this industry is largely unregulated, Sherrod. So, you know, somebody could could hang a shack on their door and say, hey, I'm a qualified intermediary. And, you know, the questions you should ask of people are, you know, do you have a fidelity bond? Do you have errors and admissions insurance?

• 37:00Speaker 04

  Do you have cyber liability insurance? Those types of things, because it does not matter if it's a hundred thousand dollars or a hundred million dollars. You want to know that your money is going to be safe during the time that it's being held by a third party that you probably just met.

• 37:20Speaker 02

  Right. So how would somebody check that? Who are, how would somebody know who the intermediaries are, what those options are for people?

• 37:30Speaker 04

  Well, you can go on the Federation of Exchange Accommodators website. And you can look up exchange officers. I believe you can search by, by state if you wanted to choose somebody that was local. I am a big proponent of shopping local and I am located here in Bakersfield. So you can also do a Google search of, you know, 1031 intermediaries in Kern County or in California. Or you can, you can find them in a lot of ways and then you could just need to ask those types of questions. Also, where is the money kept?

• 38:11Speaker 04

  That's another important question. You do not want your money to be co-mingled with anyone else's money. It needs to be kept in a segregated account so that it can be completely identified as your property. Should something happen to the qualified intermediary, especially if you go with a small organization that only has, you know, the one person, there are, there are those out there.

• 38:39Speaker 02

  Yeah, yeah. So much information, great information here, Karen. Before we let you go, is there any other fact or, or advice that you can give our listeners?

• 38:50Speaker 04

  I just think that it's important to establish a good relationship with your qualified intermediary. When you call them, be prepared to let them know what you are hoping to accomplish. Because if you just tell them that you're selling something and that it was a rental, but you don't tell them that you plan on buying a personal residence, then your expectations may not be met because a personal residence, even though you and I know meets the standard of what is real property, it doesn't meet the standard for a 1031 exchange because a personal residence is not considered.

• 39:29Speaker 04

  Held for business or investment. So I always try to, I don't know, people probably think I'm nosy because I ask a lot of these questions, but I just want to make sure that we're all on the same page. There's no misunderstandings and that I'm able to meet their expectations and help them achieve their goal. I think that's most important.

• 39:51Speaker 02

  Yeah, you want to be careful when you're dealing anytime you're dealing with this very specific tax code and your investments work with a professional. I'm glad you mentioned a local. That really helps when you can see somebody face to face and they've got experience and their neighbor can refer them and that kind of thing. So great stuff, Karen. Thank you so much for taking the time and coming on the show and explaining this this complex issue. Really appreciate it.

• 40:16Speaker 04

  You're welcome. I'm always happy to help. And if anybody has any questions, please feel free to give them my phone number or my email.

• 40:22Speaker 02

  Will do. Will do. Thank you so much, Karen. That's

• 40:25Speaker 04

  Thank you.

• 40:26Speaker 02

  That's Karen Clemens. She is the Business Development Director for Cruit and she is also a CES, which is a Certified Exchange Specialist dealing in 1031 exchanges. Thanks so much, Karen. We're going to take a quick break. We'll be right back.

• 40:41Speaker 00

  Are you an employee with a company sponsored retirement plan? Do you fully understand how you're invested and whether or not you are maximizing your retirement plans options? For more information on a free assessment, contact MoneyWise's 401k Specialist, Justin Leland, at 661-847-1000.

• 41:02Speaker 02

  We're back. Welcome back to MoneyWise. I'm Sam. I'm Jared Waite. That's Sammy, taking your questions and comments. As we mentioned, we started the show out Sammy talking about the wild geopolitical events over the weekend, particularly the the capture of Nicolas Maduro, the president of Venezuela. This is, you know, this certainly would have been shocking news almost at any time in our history. Venezuela is particularly interesting because of having the the world's largest proven

• 41:37Speaker 03

  Oil reserves?

• 41:38Speaker 02

  Oil reserves, you know, hundreds of billions of dollars of of oil that is is there. And the only US oil company has a presence there is Chevron, which is pretty phenomenal that Chevron has been able to stay, you know, active in some form over the last, you know, 20 plus years there in Venezuela, considering, you know, all of the the changes and the and the, you know, the regulatory changes that the that the regimes have made there in Venezuela. It was, I was really curious about how the markets were going to open up and and and perform today.

• 42:21Speaker 02

  The Dow at one point hit its all time high. It it didn't close at its all time high, but it hit it hit a record for an all time hot intraday high today, shrugging off any concerns. You also looking looking at the publicly traded companies that are and oil and energy companies doing pretty well today.

• 42:47Speaker 03

  Yep.

• 42:48Speaker 02

  Really, really shocking.

• 42:49Speaker 03

  Yeah, I mean, there's the the outlook of potential investments in Venezuela that could generate a lot of revenue and profits. If what President Trump says takes place, which is basically he's going to be running the country for the time being until the next president is either elected or chosen, whatever the case is. But it opens the door for American companies potentially to go and invest in in oil exploration, production and what have you, which has not been the case with the exception of the of Chevron.

• 43:25Speaker 02

  Yeah.

• 43:26Speaker 03

  And by the way, Venezuela.

• 43:29Speaker 03

  Is is has the largest reserve of oil, but also of other minerals as well, including gold and and and other precious metals. It's a very, very rich country that has not been run

• 43:46Speaker 03

  correctly, in my, in my opinion, for the last, I don't know, three decades. I mean, since Chavez, Maduro is the child of of of the teachings of the former president Chavez.

• 43:58Speaker 02

  Right.

• 43:58Speaker 03

  Which nationalized the oil companies and and and socialized the country. And I've known a lot of, I mean, as an international student, 25 years ago, I had to meet or I met a lot of Venezuelans that were not happy with those changes 25 years ago and fled the country.

• 44:15Speaker 02

  Yeah.

• 44:15Speaker 03

  So I know there's a lot of, you know, mixed feelings about what happened or how it happened, or should it be happening? So we're, we're gonna have to wait and see. You know, you know what's, what's interesting and funny at the same time? I sent you a picture just now about Maduro and the Nike fleece that he's, he was wearing the time he was arrested.

• 44:36Speaker 02

  That's what he was wearing.

• 44:38Speaker 03

  It sold out. It sold out and Nike stock went up 2.06% today.

• 44:44Speaker 02

  Oh, my gosh. Out of the popularity of the suit.

• 44:47Speaker 03

  I bought the same exact fleece. Now, next, next October 31, guess what?

• 44:54Speaker 02

  Got your Halloween costume?

• 44:56Speaker 03

  That's my Halloween costume.

• 44:58Speaker 02

  You could put on the blindfold and the earmuffs.

• 45:02Speaker 03

  Steven is gonna be on the side, holding my arm, making sure I get to my office safely.

• 45:07Speaker 02

  I, I did notice that Maduro is wearing a few different pieces of clothing, like throughout the day, because I obviously had to like move him all the way to New York. They must have changed a couple of times.

• 45:16Speaker 03

  That came out, some people saying they changed, this, this guy changes more often than my, uh, my, uh, my girl, uh, that's, that's 15 year old. He changed multiple times.

• 45:30Speaker 02

  Yeah, I mean, it's really interesting to see where some of the profits are coming today. You mentioned Chevron, its stock also popped about 5%. And oil service giant Halliburton jumped over 8% because you think about it. This is, you know, Venezuela has heavy crude, it's sour. Tomorrow, by the way, we're gonna have a great show tomorrow with Chad Hathaway. And I'm excited to talk to Chad about what he thinks about this. Chad follows global oil markets, he's a local oil producer. So I'm really excited to get sort of a local opinion on what is going on in Venezuela. What's gonna happen here in the United States? What's gonna happen to the global supply of oil?

• 46:15Speaker 02

  But also refining, so you have these refining companies and service companies that are going to be needed, that's a higher tech that's needed to refine that heavy sour oil from Venezuela.

• 46:34Speaker 02

  It's gonna be, it's gonna be interesting to see, you know, how this all plays out.

• 46:39Speaker 03

  Yeah, yeah, I'm very interested to see what the next steps are, not just, I mean, here in America, of course, but also in Venezuela, because I, like I said, I had some friends that were from there and, and I mean, hearing their stories versus what's happening now, you can easily pick a side, but you have to hear the other side as well.

• 46:59Speaker 02

  Yeah, yeah, obviously, I mean, I even hesitate for us even talking about some of these geopolitical issues because they're so complex. But I don't know, you know, prediction markets and websites like Polymarket, which is essentially a way that the public could make bets on current events. I don't know if you saw this, Sammy, but on Friday, a trader made a $30,000 bet on Polymarket, betting that Maduro was gonna be out by January 31st, January 31st of this year. And that, of course... Of course, the way that the bets work, it was, especially at that time, it was a secret

• 47:41Speaker 02

  plan. The public didn't know about it. That 30,000 turned into 436,000 and change. So somebody basically made huge money on betting on what was going to happen with Maduro. And it's led lawmakers now to take a look at this and going, well, now we got to deal with insider trading on the prediction markets, right? You have a representative Richie Torres, who plans to introduce a bill this week called the Public Integrity and Financial Prediction Market Act, essentially making it, protecting bettors from people who have inside knowledge of that. Because if somebody knew that this was going to happen, a congressperson knew that Maduro was

• 48:26Speaker 02

  going to be taken, they could go right on, right down poly market, make a bet, make a ton of money. It's like it's opened up this whole other market that needs, is in its infancy and needs to regulate it in some way, just to protect consumers. We're not advocating people go out there and bet these things, but this is

• 48:45Speaker 03

  This is what's happening right now. This is like, interesting. It's interesting. I mean, you know, unfortunately, you cannot exchange that money like Karen said, it has to be a real property.

• 48:57Speaker 02

  That's right. That's right. And you're taxed on that. It's all taxable, right? Because it's like a gambling winning. But yeah, who is this person, you know, that just like Friday? So just the, you know, just over 24 hours before it happened, was able to do that. It's pretty phenomenal.

• 49:15Speaker 03

  It is. It is.

• 49:16Speaker 02

  Well, it was a great show. I want to thank Karen for coming on the show. I want to thank all of you for tuning in and listening to this day's podcast. If you'd like to listen to this or any of our previous past programs, go subscribe to the Money Wise Podcast. It's commercial free on all major podcast platforms like iTunes, Apple Podcasts, or Spotify. Of course, remember these three things: be smart, be safe, and always be money wise.

• 49:42Speaker 01

  Securities offered through LPL Financial, member FINRA, SIPC. Investment advisory services offered through LPL Financial. LPL Financial and Money Wise Wealth Management are independently owned and operated.