Worcester Business Journal

wbjournal.com | September 26, 2016 | Worcester Business Journal 17 Nat King Cole "You must remember this, a kiss is still a kiss. " Standard Time weekdays 3:00 to 6:00 pm. The Great American Songbook and jazz standards. And great radio is still great radio. Herman Hupfield Proper exchanges Leominster-based Exchange Authority has helped clients defer their tax payments by exchanging items like: • Apartment buildings • Race horses • Construction equipment • Jackson Pollock painting • Fast-food franchise • Florida rental property • Martha's Vineyard ferry boat Source: Exchange Authority Exchange Authority first started. Halligan and John Kimball, who were commercial real estate brokers, worked some deals together in the late 1980's when interest rates were through the roof, prompting more creative ways to move property. The exchanges were being used on the West Coast, but the pair were among the first to do them in the Northeast. "We had people that literally threat- ened to throw us out… Their attor- neys were saying, 'It's one of those damn things they do in California and its illegal, immoral and I will never let my clients do it,'" Halligan said. A horse, a painting and a Grey Lady While about 90 percent of these exchanges are of real estate, the com- pany has handled some unique exchanges over the years. They included a race horse, being careful that it was not for a mare as the tax code only allows same gender exchanges, as well as a 10-percent stake in a Jackson Pollock painting in exchange for two other paintings, as under the law it could not be for a statue or other type of artwork. The Grey Lady II ferry boat, which lived its life shuttling riders between Hyannis and Martha's Vineyard, was another exchange handled by the company. "You were putting together transac- tions that benefited people, allowing them to use all the cash out of a transac- tion and putting it into a new property," Halligan said. "You're doing them a ben- efit, and all we're doing is telling them these are the rules you have to follow. It's a very friendly business." While these stories are the interest- ing side of the business, they also high- light the potential difficulties with exchanges. Some might be simple, but there are nuances to all these exchanges that make it vital to have someone with knowledge not only handle the exchange, but determine whether the deal is a good candidate for an exchange in the first place. This is an important part of the pro- cess because these exchanges aren't always the right move, said Michael Libster, president of the National Council of Exchangors, a group of licensed brokers and real estate agents who have formed a network that spe- cializes in exchanging properties and advising each other on those transactions. While members of the organization make use of 1031 exchanges, it is only when it makes sense, he said. "If you have a gain then a 1031 makes sense, but that's not necessarily an absolute," Libster said. Pay now vs. pay later One such factor is whether capital gains taxes will increase in the future. Because clients carry the gains forward, they could potentially end up paying more to the government for the gains. First and foremost, Libster said, is assessing their tax implications and finding out what the exposure is on the deal. Then exchangors can figure out what tax structure serves clients best in the deal. While Libster explained this might mean opting not to use a 1031 exchange, having them as an option is a large benefit. Educating people about the exchang- es has thus been a priority for the Exchange Authority, and it is one Charland says he will maintain a focus on. With the company handling exchanges throughout the country, the company will remained focused on this very specific portion of the tax law and helping people make use of it when it makes sense. P H O T O / S A M B O N A C C I W

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