Caroline Chandler used to babysit John Boyd’s children. On this night, though, she’s gingerly sliding freshly potted sprigs of parsley, basil and mint into gift bags for each of the 150-some guests at a downtown party celebrating the 30th anniversary of Boyd’s company.
Banker Exchange launched a year after Chandler was born. Now Boyd’s firm is firmly planted in Greenville’s lush financial garden, and Chandler no longer babysits his kids.
Now among his eight employees — all women — she serves as an “exchange coordinator” at Banker Exchange, whose work sounds as complex as, well, the IRS regulation around which it functions: Internal Revenue code 1031.
In the simplest of terms, the rule allows investors to defer capital gains taxes when they exchange “like-kind property” within 180 days. Let’s say you bought a building for $7 million and sold it for $10 million. You would then be on the hook for federal taxes for the $3 million windfall unless you purchase a similar property within six months and according to the IRS’s strict guidelines; the code clearly defines “like-kind property.”
“It’s not as easy as just selling a piece of property and buying another piece. That’s what it looks like on the outside,” Boyd says. “You actually have to make the two transactions interdependent, and that’s what we handle.”
Banker Exchange, then, serves as a qualified intermediary for what Boyd calls the “acquisition and disposition” of properties. While the IRS says property owners/investors aren’t allowed to handle any of the moving parts — namely, the cash — themselves, the agency notes: “Taxpayers engaging in deferred exchanges generally use exchange facilitators.”
And that would be Banker Exchange, one of only a handful of exchange facilitators operating in South Carolina. The company’s name stems from the fact that, again, in the least-complicated terms, the firm earns transaction fees for depositing capital gains in banks.
Boyd, who graduated from Furman in 1986 with an accounting degree, started the company after a friend asked if he would be willing to hold $75,000 for three days … and get paid $2,000 for the service.
That was in 1992, just a few years after the 1031 guidelines came along. The new code opened what Boyd calls a “very cottage industry,” a niche business that also handles, in slightly more complicated terms, the “acquisition and disposition” of property.
Peter Manning, who now runs his eponymous law firm in Greenwood, “planted the seed” for Boyd’s business back then with South Carolina’s first-ever like-kind exchange using a qualified intermediary. At the start, the company handled 20 exchanges a year, he says.
Now Banker Exchange counts as many as 400 deals a year with last year’s revenues around $1.7 million and an annual growth rate of about 35%, Boyd says.
Says Manning, “He’s one of the most forward-thinking people I ever met in terms of developing concepts for making money and then finding ways to implement them. He’s a true entrepreneur.”
Banker Exchange shies away from institutional investors, Boyd says: “The satisfaction I get is helping Main Street investors, the small community investor, manage their tax liability and leverage the tax savings to grow their net worth. I get more satisfaction out of helping the common man than I do the elite.”
Banker Exchange’s handiwork underlies much of Greenville’s marquee developments, from RiverPlace and Poinsett Plaza to several along Woodruff Road; reinvested capital gains helped build the city into a boomtown.
As for the last 30 years, Boyd says, “We’ve been blessed. We enjoy what we do and it is very gratifying to help people effectively save on taxes.”
So, what is Internal Revenue Code (IRC) Section 1031?
- “A 1031 exchange is a tax break. You can sell a property held for business or investment purposes and swap it for a new one that you purchase for the same purpose, allowing you to defer capital gains tax on the sale.
- “Proceeds from the sale must be held in escrow by a third party, then used to buy the new property; you cannot receive them, even temporarily.
- “The properties being exchanged must be considered like-kind in the eyes of the IRS for capital gains taxes to be deferred.
- “If used correctly, there is no limit on how frequently you can do 1031 exchanges.
- “The rules can apply to a former principal residence under very specific conditions.”
Source: Investopedia
