Other People's Google Search Terms Reveal 1031 Exchange Problems

I’m going to share some insights with you about 1031 exchanges that may significantly alter your perception of the potential risks and problems associated with this tax strategy.

Just as “the wisdom of crowds” is often suggested as a powerful way to obtain insights about market and social phenomenon, records of the collective keyword searching performed many people involved in 1031 exchanges can be quite revealing.

In this post, I share what I have learned about 1031 exchange problems, based my review of actual Google search behavior. My hope is that the lessons to be learned by analyzing Google search data related to 1031 exchanges will help you become better informed about the risks that exchanges carry.

If you search on Google for the keyphrase “1031 exchange success rate,” like this…

…you will get no exact match results, as seen below. Also, as seen below, you will get over 6 million other results, none of which yield any information at all about the percentage of 1031 exchanges that are successfully completed.

It doesn’t matter whether you request an exact match (using quotation marks), a broad match, or variations of the keyphrase, all of which Google easily understands. You also can search for 1031 exchange failure rate(s) and you will obtain no hard data about how often 1031 exchanges fail.

Since 1031 exchanges are a major institution with a whole industry built around them, one would think that people contemplating large and complex transactions like these would be able to tap into some industry data to help them assess the risks. After all, 1031 exchanges are not foolproof, and many don’t succeed. But finding hard data on the risk of 1031 exchange failure appears to be futile. One can find countless articles offering non-quantitative discussions about doing exchanges, but nothing at all about what one’s chances of success or failure may be if one undertakes a tax-deferred exchange for themselves.

Since there is no way I know of to pry into the records of the nation’s 1031 exchange intermediaries to find out how often exchanges really fail, I decided to go at this question from another direction, which is the topic of this post. My motivation was to use some factual data that might reveal whether failing exchanges are a significant problem, even if the precise success or failure rates can’t be determined. The data I can access and that can indirectly reveal something about the prevalence of failed 1031 exchanges comes directly from Google.

The Keyphrase Data We Used from Google

Here at Deferred Capital Gain, we offer monetized installment sales, an alternative capital gains tax deferral strategy that enables real estate investors to achieve the goals of a 1031 exchange without bearing the risks of an exchange and enabling investors to obtain more economic benefit, after-tax, compared to an exchange.

For this reason, we use reports about what people are searching for on Google to learn about the concerns and problems people face when they want to defer their capital gains tax.

For example, Google reports to us not only the volume of visits to our web site and the number of unique visitors, but also the specific search terms those visitors typed in to Google’s search box that led Google to include our web pages in the search results (organic or paid advertising), as illustrated in the graphic below.

We set our keyword filters to “broad match” so that we don’t limit site traffic to searches that narrowly relate to what we do. Instead, we invite traffic based on the entire spectrum of searches related to 1031 exchanges and other broad tax topics. This allows us to see search terms that cover a wide variety of interests and concerns.

So, I “spied” on our site visitors (who cannot be personally identified using this approach) by carefully reviewing enough data to observe patterns. Specifically, I reviewed 2,169 keyphrases related to 1031 exchanges that people recently typed into Google. The keyphrases used in these searches caused Google to include our site’s pages in their search results listings, because Google’s algorithms determined our site’s content was relevant to the searches performed.

The pattern that emerged can be described, in general terms, with this breakdown:

General Information Searches

The “general information” searches and those indicating curiosity about the many 1031 exchange rules (other than asset type) don’t reveal significant insights. One would expect that many searches about this topic (or any other topic) would begin with broadly-framed queries as people initially approach the subject. Here are examples of the general search terms:

• 1031 exchange

• what is a 10313 exchange

• tax deferred exchanges in a nutshell

• what do i need to know about 1031 tax exchange

• like kind exchange

• what is a 1031 exchange used for

• what is the difference in 1031 exchange and just reinvesting the money

• how does a 1031 exchange work

• hey google how does the 1031 rule work in real estate

• 1031 exchange process

• when do u have to pay tax after 1031 exchange

Specific Searches Tell a Story (58% of searches)

It’s the more specific search terms that interested me. These reveal questions that arise as people proceed further into their 1031 exchange experiences. The questions people ask Google once they become enmeshed in the complexities of undertaking exchanges comprise about 58% of the search terms we observed, indicating concern and even vexation about the limitations and problems associated with 1031 exchanges. And we observed a significant percentage of queries seeking 1031 exchange alternatives, signifying dissatisfaction with this tax strategy.

The first group of “specific” searches (48%) is comprised of queries about the rules: in other words, what is or is not allowable when using a 1031 exchange? These questions range widely in content because 1031 exchange rules are numerous, including many in these categories:

• 1031 exchange deadline or timeline

• Replacement property identification rules

• Partial 1031 exchange and boot issues

• Mortgage loan issues

• Related parties/same taxpayer rules

• 1031 exchange fees and costs

• Demonstrating “investment purpose and intent” as part of like-kind property rules

• Rule changes in 2018 due to Tax Reform and Jobs Act of 2017

My favorite: how many ways are there to comply with a 1031 exchange

Followed by: who makes money from 1031 exchange rules

Hey Google, Is This “Like Kind?

There is a sub-group within the queries about 1031 exchange rules, representing 10% of all search terms, that are queries about whether certain asset types are considered eligible for a 1031 exchange. In other words, people are asking whether certain types of assets they want to sell are considered “like kind property” by the IRS), These queries may be framed in general terms, such as:

Many queries about “like-kind” property ask about exchanging specific types of non-real estate assets via a 1031 exchange (which is no longer permitted, since December, 2017). Clearly many of these searchers are in for a disappointment when they learn that a 1031 exchange does not allow them to exchange out of (or into) the asset contained in their search query. Or, as in the case of primary residences and vacation properties, some onerous rules may apply, such as renting out the property for a lengthy period before selling to demonstrate investment intent. People asking about these topics also will likely be disappointed with the answers. Examples of these queries include:

• 1031 exchange real estate for stock

• vehicle like kind exchange example

• can you do a 1031 exchange for a rv

• can you do a 1031 tax deferred exchange to a yacht ad a rental

• implications of 2018 like kind exchange rules for collectibles

• buying a floating home as a 1031 exchange

• reverse 1031 exchange aircraft

• can 1031 exchange buy a plane

• can you buy cattle on a 1031 exchange

• like kind exchange mineral rights

• can you 1031 water rights

• 1031 exchange for oil and gas leases

• irs tax code like kind exchange platinum rhodium

• are crypto a like kind exchange 2017

• 1031 exchange corporation stock

• 1031 exchange on sale of business

• can you do a 1031 exchange on a business

• sell insurance agency and 1031 exchange

• 1031 exchange rules primary residence

• art like kind exchange

• convert 1031 exchange to primary residence

• how can you making a 1031 exchange your primary residence

• how to convert 1031 exchange to primary residence

• can you do a 1031 exchange and not rent it out but live in it

• 1031 if you lived in the home for years

• if you do a 1031 exchange can you later make it your primary residence

• can i live in my 1031 exchange property

• can you rent your 1031 exchange property to yourself

• 1031 exchange vacation home

• chicken production farm 1031 exchange

Google: What Could Possibly Go Wrong -- 1031 Exchange Risks, Problems and Pitfalls (13% of search terms)

This next category of keyword search terms provides our firm with many insights into why people should consider not doing 1031 exchanges and instead use monetized installment sales to exit from one real estate investment and subsequently acquire another one, without triggering capital gains tax immediately upon sale. These types of searches clearly show people worrying about the risks and problems that can arise when attempting 1031 exchanges.

Should I Be Concerned?

Here are search terms suggestive of people looking into 1031 exchanges with a certain level of wariness:

• 1031 tax exchange a good idea

• should i do a 1031 exchange

• is 1031 worth it

• 1031 exchange for areas of concern

• when wont a 1031 exchange work

• when would it be best to not defer gain in a like kind exchange

• reasons not to do a 1031 exchange

• why you should avoid tax deferred exchanges whenever possible

• what is the pitfall of doing 1031 exchange rules

• 1031 exchnge risk

• 1031 timing issues

• success rate of 1031 exchange

• how to avoid a failed 1031 like kind exchange

• risks of 1031 exchanges

• pitfalls of 1031 exchanges

• 1031 complications

• dangers of 1031 deals

• 1031 exchanges explained failed purchase

• does a 1031 make sense at age77

Unclear on the concept:

• how can i get cash o nce i have 1031 exchange

• how to get all your money out in a 1031 tax exchange

• i was just told i should of done a 1031 exchange and i did not know about it what happens now

Yes, here’s how to signal to your seller that you soon may be desperate to buy:

• do you have to disclose if it is a 1031 exchange when writing an offer

Having problems finding acceptable replacement property:

• 1031 in a hot market

• is there anywhere that you can easily do a 1031 exchange

OK, I found one. Is it too late?

• is there any way to change an identified 1031 exchange property after the 45 days

Why are you asking?

• 1031 exchange how closely does irs track

• what triggers a 1031 exchange audit

• irs audit of 1031 exchange

Houston, We Have a Problem

Sensing trouble ahead, people involved in exchanges that are going off the rails turn to Google for answers:

What, there are rules? (Necessary venting of emotion before one can think straight)

• 1031 pissed consumer

• 1031 exchange rules bullshit

This is Not as Easy as it Looked

• 1031 exchange cant find an up leg

• 1031 exchange what if i can t find something in time

• when 1031 exchanges fail and a seller has problems in escrow

• in a 1031 exchabge what hapens if your realtor doesnt find another house

• what happens if you pass the 180 1031 exchange date

• out of time on my 1031 exchabnge

Looks like it’s going to be a cliffhanger – how do those deadlines work?

• is a 1031 timeframe business days only

• what time of day is your 1031 exchange is up

• 1031 exchange days and government shutdown

• can a 1031 exchange fail before day 180

Well, then how do I get an extension?

• 1031 exchange exceptions

• extending 1031 exchange

• 1031 exchange timeline extensions

• can you get an extension on a 1031 exchange

• ways to delay a 1031 exchange

• can apply for extension 1031 exchange

• stragies to extend 1031 exchange

• 1031 exchange delay closing date

• extensions on 10 31 exchanges

• how you do get around 1031 exchange time limit

• can you extend the time for 1031 exchange if the property falls through

• 1031 exchange extensions

• what are the reasons a 1031 exchange can be extended

• 1031 exchange rules 2018 time limit extention

• how to get more time in a 1031 tax exchange

• how to extend the exchange period on a 1031 exchange

• is there any way to extend a 1031 exchange

• one time lifetime exemption on 1031 exchange

• special exception rules in 1031 exchange

• can you extend a like kind exchange past the 180 days

• 1031 exchange illness extention

• 1031 need more time

• 1031 exchange timeline extension

• can you extend a 1031 closing period

• 1031 exchange rules extension

Google, How Bad Could This Get?

• 1031 exchange failed

• what happens if i miss the 1031 exchange

• tax consequences of failed 1031 exchange

• what if a like kind exchange does not go through

• what happens when you don t close 1031 exchange escrow on time

• what if yoy hava a busted 1031

• what to do if you miss a 1031 exchange deadline

• like kind exchange what happens if you miss the deadlines

• what is penalty if you fail to complete 1031 exchange

• penalty on failed 1031 exchange

• what if the 1031 exchange falls through

• what if i cant close on a 1031 exchange

• what happens if you don t complete the 1031 exchange

• missed 1031 exchange deadline

• what is the tax percentage if you take out money from escrow on a 1031 exchange

• what are the consequences of a failed 1031 exchange

• penalty for failed 1031 exchanges

• how to resolve a boot situation from a 1031 exchnge

• 1031 exchange replaced for less

• 1031 exchange amount shortage

• what happens when a 1031 exchange fails

• what if 1031 exchange fails

• what is the penalty if a reverse 1031 exchange is not fulfilled

OK, I get it

• 1031 exchange doesn t benefit the seller when there's a problem

Is there any way around this?

• what should i do if my 1031 fails

• doing a sec 1031 exchange i missed deadline what do i do

• 1031 exchange remedies

• loopholes in 1031 exchange rules

• what happens if you cant find a 1031 and you miss id period can you buy a condo in a opportuniy zone

• is there a way to straighten out a 1031 exchange that hasn t been done correctly

• can you refile 1031 exchange falls through

• is there a way to accomplish like kind exchange if replacement property not identified in 45 days

• what options do i have if a 1031 exchange falls through

• can you back money out from 1031 exchange mistake

• how to save on taxes when your 1031 exchange fails

• 1031 exchange identified properties all sold what to do

• unwinding a reverse 1031 exchange

• will irs know if i do not close 1031 in 180 days

• how can you get around paying 1031 taxes on

It seemed like a good idea at the time, but…

• what if you mistakenly put your money in a 1031 exchange

OK, then can we just forget the whole thing?

• can i cancel my 1031 exchange

• can you cancel a 1031 exchange after closing

• what are the rules about canceling a like kind exchange

• cancel current 1031 exchange and to get another 1031 exchange

• how to legally get out of a 1031 exchange

• 1031 exchange exit strategy

• how to remove a 1031 exchange

• can i cancel 1031 at closing

• can i cancel a reverse 1031 exchange

It’s not something you get over…it’s something you get through (with a nod to Willie Nelson)

At some point people with failed exchanges must move on, from grief to acceptance. Here are search terms we’ve seen indicating failed or unsatisfying attempts at 1031 exchanges, and the searcher is dealing with the aftermath.

• 1031 exchange rules refunding money

• limitations on access to funds held in cancelled 1031 exchange

• form 1031 exchange failed

• how to report a failed 1031 exchange

• do you file an 8824 on a failed 1031 exchange

• how to file failed 1031 exchange

• failed 1031 exchange when to report

• when to report gain on a partial failed 1031 exchange

• paying estimated taxes if 1031 exchange fails

• report capital gains after 1031 exchange not completed

• can i deduct replacement property search expenses failed 1031 exchange

• i bought a house on a 1031 now i want to move into it

• did 1031 exchange what if i don t want to use it

Google: Find me some 1031 Exchange Alternatives (4% of all searches)

4% of the search terms that lead people to our web site indicate hope in finding alternatives to 1031 exchanges, whether as a backup plan or as an option to a derailed exchange:

• backup for 1031 exchange

• 1031 exchange rules backup

• wood structured installment sales as a backup to 1031 exchange

• 1031 exchange options

• 1031 exchange alternative

• best 1031 exchange options

• 1031 exchange options

• 1031 exchange contingency

• 1031 exchange alternatives

• tax savings without a 1031 exchange

• alternative 10 31 exchange options

• 1031 exchange variations

• last chance options for 1031 exchange

• beside the 1031 exchange what is another way to save on taxes

• how to get out of a 1031 exchange without paying high tax

• other than 1031 exchange

• allternatives to 1031 exchange for deffering taxes

• avoiding 1031 exchange

• alternative to 1031 exchange

• options if you miss 1031 exchange

• other options to a 1031 exchange

• avoid capital gains tax without 1031

• how to defer capital gains tax with out 1031 exchange

• 1031 alternatives

• other options to a 1031 exchange

• alternatives to 1031 exchange

• short term 1031 exchange options

• alternative stratagies to 1031

• can i still be tax exempt by buying another property without doing a 1031

• avoid capital gains tax no 1031

• learn the many ways defer capital gains taxes without 1031 exchange

• other options than 1031

• alternatives to a 1031

• is there anything other than at 1031

• what option are available instead of 1031 exchange

• are there any tax benifits to selling one real property and buying anouther without doing a 1031 exchange

• how to get rid of capital gains from a rental property without using 1031 exchange

• anything similar to a 1031

• other than a 1031 exchange

• what is similar to 1031 tax deferred exchange

• how to defer capital gains taxes without a 1031 exchange

• avoid cap gains without a 1031

• alternative to 1031 deferred exchange rules

A small number of searches cut to the chase and ask very directly:

• better than 1031

• whats better than a 1031 exchange

• better than 1031 exchange

You're Getting Warmer

Somehow the word gets out to a few people that an installment sale could be one way to deal with 1031 exchange problems:

• failed 1031 exchange installment sale

• failed 1031 become installment sale

• structured installment sale backup 1031 exchange

• insatllment sales as alternative to 1031 exchanges

• like kind exchange installment sale

An installment sale is the tax-deferring mechanism used in a tax strategy known as a deferred sales trust. People often discover this topic when searching for 1031 options involving an installment sale.

• can i transfer from a 1031 exchange to a deferred sales trust

• deferred sales trust vs 1031 exchange

And a few hardy searchers stick it out long enough to discover this valuable key phrase, which can lead to avoidance of 1031 exchange failure if applied before it’s too late.

• monetized installment sale

Search Google Like Nobody’s Watching

One bonus of doing the tedious review of search terms was finding these comic gems. I present them with my “free association” reactions.

Conclusion

In this post I have shared some of the insights we've gleaned by looking at Google searches about 1031 exchanges that led people to our website. I have shown how over 2,000 recent searches we’ve observed reveal uncomfortable truths about 1031 exchanges suggestive of unpleasant experiences people often seem to have when attempting 1031 exchanges:

• Many exchange participants have concerns about attempting exchanges;

• Quite a few searchers want to exchange out of asset types now allowable under 1031 exchange rules;

• Many more have found themselves in predicaments connected with an exchange that will likely result in having to pay capital gains tax instead of exchanging into a replacement property;

• Unfortunately, it occurs to only a small fraction of searchers that there may be 1031 exchange alternatives worth considering.

I offer this information as a warning to those who would otherwise be unaware of 1031 risks, costs and limitations.

For those who want a deeper dive into this topic, we offer a white paper that compares the 1031 exchange strategy to the monetized installment sale, which includes an in-depth analysis of the factors that lead 1031 exchange participants to overpay for replacement property or settle for replacement property that does not fully satisfy investors’ financial criteria.

I hope this post has been entertaining and informative! Drop me a line with any comments or questions!