Submitted by: LongHall


I’ve done some reading and understand that I can’t have any contact with the monies and documents, nor can anyone related to me or doing business with me. (This feels like an UNpopularity contest.) So can it be done without paying someone? How? Please don’t say it’s too complicated! I enjoy this stuff and probably should have been a CPA.

Submitted by: wscarpelli@sbcglobal.net


If so, if you have a condo that is a cashflow property, does that count? Say that I fix up a condo and sell it for X amount of dollars, if I buy another condo just like it that is not updated, does this count under the 1031 exchange?

Submitted by: ScottNLA


any one know about MHPs, versus RV parks…NNN or multi family

One of the most essential concepts in the 1031 exchange process is that a property investor must not receive any cash benefit from the proceeds of the sale of his or her relinquished property; any kind of cash benefit from the sale is considered to be boot, and this means, in fact, subject to capital gains taxes. In keeping with this concept, the act of refinancing for the purpose of removing equity from the 1031 property delves into a rather gray area with regard to acceptability under Section 1031.

In a court case involving an investor named Garcia, the court clearly asserted that any benefit received by an investor resultant from the refinancing of a property in anticipation of selling it in an exchange will be deemed to be boot. This decision set a precedent for the way in which these kinds of situations. As of now, a more common strategy is waiting until after the closing on the replacement property, and to refinance at some point afterward. This practice, however, raises the issue of how long it is appropriate to wait before performing this refinancing and removing equity from your replacement property.

The most conservative investors would advise you not to refinance until a considerable time post-closing (maybe as long as two years), in order to make absolutely sure that you’re in compliance with the intent of Section 1031. The popular mindset amongst more liberal minded contingency of investors, however, is to assume that the closing on the purchase of your replacement marks the definitive ending of to the 1031 process, and so an investor need not fret over the substantiation of the exchange from there onward. For a property investor who perceives the 1031 process from this vantage point, it is irrelevant how long one waits to refinance a 1031 replacement property, and many investors will elect to do so directly after the closing .

If you are expecting any kind of hard and fast rule as to when you ought to refinance your replacement property, you are doomed to disappointment, at least in regard to this article. The two schools of thought discussed here are only opinions, and represent extremes on a wide spectrum. Investors vary a good deal in the way in which they elect to approach these types of legal gray areas, and the most useful suggestion that I can {impart is simply to look to qualified tax adviser or legal expert in formulating your final choice, and to work closely with him or her to figure out the approach that will work best in the context of your particular situation.



By: Ajay Albertson

About the Author:

Alla

As a real estate professional currently involved in the real estate investment and development business, you understand that there are a number of ways that you can help your business succeed (as well as a number of ways that you can let your business languish). One of the best tools for any real estate investor, then, is the 1031 exchange. 1031 tax exchanges were designed by the IRS to allow real estate investors to defer payment of capital gains taxes while they are actively involved in the real estate marketplace. With a well-managed 1031 exchange, then, savvy investors can increase the value of their assets over time without paying taxes in the interim. Successfully managing those 1031 tax exchanges, however, requires strict adherence to a set of carefully designed rules.

All 1031 tax exchanges, for example, are subject to strict time limits. Your 1031 exchange clock begins to tick when you finalize the sale of your current property. From that point, you have a total of 180 days to complete the exchange. The exchange is counted as complete when you have legally received your replacement property (in other words, when your legal purchase is officially complete). In some cases, you may find that you have less than 180 days, as the period can also close on the date that your taxes are due for the year of the exchange (including extensions). Within that over-arching 180 days, the first 45-day period is known as the identification period. During the identification period, you must find and legally identify the replacement property that you wish to purchase. Your intent to purchase this property must be documented in a written, signed notice.

Another rule that is important to the 1031 exchange process is the rule of like-kind property. This rule is intended to preserve the integrity and intent of 1031 tax exchanges by guaranteeing that the replacement property you are purchasing represents the same type of investment to you that your original property did. Fortunately, the government’s rules for like-kind property are generous: you could, for example, exchange a multi-family apartment building for a tract of undeveloped land as long as it is clear that the properties represent the same sort of overall investment and business opportunity for you. The like-kind rule is simply designed to help ensure that investors use the 1031 exchange process in the way that it was intended.

In short, 1031 tax exchanges are a valuable tool for any person who regularly works with real estate for business or investment purposes. Completing them successfully, however, relies on strict adherence to a number of rules and regulations – so take care that your 1031 exchange falls within the rubric of acceptable transactions.



By: Adam Morien

About the Author:

Brietta

Submitted by: Amy


-S corporation wants to exchange commercial real estate in Ft Collins, Colorado for Water right from a unrelated third party. Both are worth 500,000. Can this qualify as a 1031 exchange?

Submitted by: Michael S


I have a house that I use occasionally for business that I want to sell and buy a cabin for vacations. Are these acceptable?

Submitted by: scivi92


I understand you need to hold the funds in an escrow account and you dont get taxed on it. But eventually if you want to take any funds out you’re going to be taxed anyways right?

News reached me a few days ago from a friend at a major national commercial real estate brokerage that LandAmerica 1031 Exchange, a substantial firm in the 1031 business, is ?terminating operations? immediately. They have frozen customer accounts and are unable to meet customer withdrawal demands. Seems LandAmerica invested its customers? dollars in illiquid auction rate securities. So now all LandAmerica customers who have their hard-earned capital gains and principal with LandAmerica can?t access their funds and stand a good chance of losing some or all of it.

There has been trouble brewing for a long time for certain 1031 companies, specifically the ones that have other businesses, such as selling/packaging tenant-in-common deals or other brokerage activities. Consider this hypocritical information posted directly on the LandAmerica 1031 website:

?As a wholly owned subsidiary of the publicly traded LandAmerica Financial Group, Inc. (NYSE:LFG), which also owns an FDIC insured bank, LandAmerica 1031 Exchange Services, Inc. (LES) is uniquely positioned to provide the security and liquidity that taxpayers and their advisors should be demanding from a qualified intermediary. To learn more about the strength of LES and why it is the appropriate QI to choose to facilitate your exchanges??

?Recent events have caused many advisors to recognize the need to better assess the solvency and fidelity of the Qualified Intermediaries (QI) used to structure ?safe-harbor? IRC § 1031 deferred exchanges, commonly referred to as 1031 exchanges. Advisors, including attorneys, accountants and real estate professionals, are examining anew the importance of recommending a QI that is a reliable financial resource for their clients. In an industry that includes a vast number of privately held, unregulated providers, LandAmerica 1031 Exchange Services stands out for its transparency and reliability. As a wholly-owned subsidiary of LandAmerica Financial Group, Inc., a publicly traded company, and operating in a highly-regulated industry, we are held to strict legal standards concerning reserves and transparency in our finances and processes. LandAmerica Financial Group, Inc. holds its own bank, and has affiliates licensed to issue title insurance nationwide.?

Serious investors should be advised to work with 1031 exchange companies with no other product areas or affiliated companies that can draw cash from it. Working with a company that focuses only on 1031 exchange services is the best and only way. Make sure they simply deposit the exchange money in highly liquid money market accounts that only invest in US treasuries, and then return it on the date the investor specifies. It?s that simple, and that safe. Or at least it should be.



By: Bob Horton

About the Author:

Shir

Submitted by: insurancelawcase


When you deposit your deferred money with 1031 Exchange Company say for anywher from 1 to 180 days…what does 1031 Company do with your money?
Is the money safe with these 1031 Exchange COmpanies?
Do I have any control over how mine money is managed by 1031 Company?
Thanks.

An important fact in regard to the 1031 process is that you CANNOT use your 1031 proceeds to fund improvements on land you own already. This is a common stumbling block of inexperienced investors. In order to qualify for a capital gains tax deferral, the replacement property must be of LIKE KIND with the relinquished property. In this case, the property you purchase must comprise real estate with a value at least as high, if not greater than that of the relinquished property. An improvement that is incomplete is considered a contract for a service, comprising personal estate but not real property. Because a property purchased as a replacement in a 1031 exchange must be of like kind and equivalent value with the relinquished property upon closing, it is, at times, difficult for an investor to locate one that fulfills these requirements and also fulfills his or her personal specifications.

So, how can you get the property of your dreams out of a 1031 exchange? There are two main ways you can go about acquiring a build-to-suit property that fulfills your structural specifications and fulfills the accounting requirements necessary for a like-kind exchange under section 1031

The first possibility is to perform what is known as a ‘poor man’s Build-to-Suit,’ in which you, as the purchaser, request that the seller make particular improvements on a piece of property to increase its value prior to closing on the sale. For example, if you sold a a piece of property with a value of $100,000, and you were looking at a replacement property valued at $10,000, the seller could construct $90,000 worth of improvements to raise the value of the piece of property. These finished renovations would constitute real estate. You would then be able to the piece of property for one hundred thousand dollars, complying with the requirement of equivalent value. Most sellers, however, will not be very eager to perform the improvements you requested so that you may make an exchange. This brings us to the second option.

In the other, likelier scenario a qualified intermediary who holds your money can buy the replacement property from the seller, taking title to the property in a limited liability company, intermediary-owned company. The intermediary would then use the remainder of the money to build the desired renovations on the piece of property. After construction is completed, the intermediary transfers the replacement property to you, which then allows you to complete the exchange process.

Returning to the previously mentioned ten thousand dollar replacement property: the intermediary would buy the property at the asking price and would construct the desired renovations using what is left of your money, returning the replacement property to you when the value of the property is sufficient to constitute a like kind exchange.

Although a build to suit exchange can go a long towards getting you the replacement property that you really want, it is important to take into consideration the span of time required for the renovations that you would like to build . You only have one hundred and eighty to complete an exchange, so it is important to be conscious of what can actually be completed in this period. Keep in mind that a renovation represents real estate when it is finished, so a work in progress doesn’t add to the property’s value. Although you might not be able to build renovations as extensive as you might want, 180 days is sufficient time to accomplish significant remodeling, and to bring your replacement property that much closer to the property of your dreams.



By: Ajay Albertson

About the Author:

Stefan

Submitted by: puffinpower


My husband and I are looking for a single family home to purchase as our primary residence. An ad for a home that looks appealing to us indicates: “Buyer to participate in 1031 exchange.” I understand the basic principle that a 1031 exchange is a way for the owner of a business or investment property to sell the property and re-invest the money in a new business or investment property without having to pay capital gains taxes on the sale of the original property. However, what I don’t understand is what the risk, if any, would be to me and my husband were we to purchase someone’s investment property as our primary residence in this type of situation. Is it simply a matter that we would have to agree to be in escrow until the seller locates and purchases his “like-kind” exchange property? Or is there more to it than that?

Submitted by: 2sweet2b4got@att.net


If you inheirit a real property from a probate avoidance trust can you make the other parties sale their parts if you have done a 1031 exchange with your share?

Submitted by: Burton D


NNN leased US post offices for sale?

Submitted by: Lynne P


The exchange did not leave enough money (after several properties were exchanged) to make additional purchase so balance of $ received in cash.

A smart tax saving tool that is gaining popularity among the real estate investors by enabling them to defer the entire capital gains tax is 1031 Exchange. Established in 1990 by the Internal Revenue Code Section 1.1031, it gives them an opportunity to defer their capital gain taxes on the sale of a property by re-investing the proceeds into “like kind” of property. However, one needs to have complete knowledge of the terms and conditions that apply for 1031 Exchange, and how it works.

Some very basic things that one should understand about 1031 Exchange are that only business and investment property qualify for the tax deferral under Section 1031. Also, the properties involved in the transactions should be of “like kind”. The term “like kind’ has often been misinterpreted to mean that if someone is selling an office of 1200 sq. ft. he should invest the money he gets from its sale to buy an office of 1200 sq. ft. only. However, this is not the case and this term has a very broad meaning. It actually encompasses any real estate held for productive use in a business or for investment. For personal property to qualify it must be depreciable and part of the daily operations of a trade or business, for instance automobiles, office equipment and furniture, machinery, computers, billboards, franchise licenses, and the like. 1031 Exchange does not cover cash, stock in trade or other property held primarily for sale, such as, stocks, bonds, notes or other securities or evidences of indebtedness, partnership interests, and certificates of trust or beneficial interests. The real property to which the rules of 1031 Exchange apply includes raw land, single family homes, hotels, multi-family dwellings, factory and office buildings, shopping centers, farmland, and so on. Also, all the proceeds gained from the sale of a property should be transferred through a qualified intermediary and not by someone who is the beneficiary, so that no one can use this money for his own financial gain. To defer the capital gains tax, the proceeds should be re-invested in like kind of property, which should be of equal or greater value and equity than the exchanged property. Moreover, the time period allowed for the re-investment should be adhered to. After selling the property to be exchanged, a replacement property must be identified within 45 days and the exchange must be completed within 180 days.

Deferring all capital gains taxes is not the only benefit that one gains from 1031 Exchange. It also has some hidden benefits, such as, the provision for re-investing in another property can significantly add to one’s assets. Moreover, as the property assets appreciate in value one can easily upgrade to a property of higher value with the additional cash flow. 1031 Exchange also provides the flexibility to exchange the rental properties that have appreciated in value in hot markets and re-invest into lesser-known areas that are expected to appreciate in value and become the next sizzling markets in the approaching years.



By: Mansi Gupta

About the Author:

Sanjoy

One of the most powerful tools in a real estate investor’s bag of tricks is the 1031 Exchange. When used properly it can defer the tax on capitals gains almost indefinitely.

A 1030 Exchange is really very simple. You don’t actually have to trade one property for other… you just must use the gain from the sale of a income producing property to buy another income producing property. There are a few simple rules you must follow. One rule is that you have to complete the transaction with in a prescribed time period.

The other requirement of a 1031 Exchange is that you must never personally touch the money from the sale of the first property. Certain people and companies are in business to act as an “Intermediary” in exchanges. Their primary job is to collect and hold the funds from the buyer of the first property and deliver them to the seller of the property you are acquiring. And that’s where the trouble starts.

In the past few years some Intermediaries have disappeared and the funds they were holding from many deals vanished along with them. Often the investor’s losses amounted to from hundreds of thousands to millions of dollars.

Oh yes, there have been other problems. Some Intermediaries “co-mingle” the monies they are holding for exchangers. That means that all of their exchange client’s money is held in one account under the Intermediary’s name. If the Intermediary is sued for some reason all money in the account may be frozen. If the freeze lasts beyond the prescribed time limit (180 days) for exchanges the investors are out of luck. There are no extensions possible of the 180 day deadline. Now the investors must pay income tax on all those capital gains.

With the huge increase in real estate values in many areas recently, investors should be using 1031 Exchanges. There is just no better way to protect their profits and build net worth. But they must also protect those profits from careless intermediaries.

Make sure that your exchange funds are held in a separate exchange account that holds only your money and no one else’s. That account must be separate not only from other client’s monies, but also separate from the intermediary’s assets.

Each of the accounts should have the client’s name on it something like this: “The Exchange Kings, as intermediary for Barbie and Ken Investor”. That account must have the investor’s tax ID or social security number on the account. Now, no matter what goes wrong with the intermediary, your exchange funds will remain protected and accessible.

It’s great to exchange a property for profit. Just don’t exchange that profit for an unexpected loss.



By: Mark Walters

About the Author:

Alica

Submitted by: marksparlin


Also can the funds be used to purchase a personal residence?
The easement covers approx. 2.75 acres of a 10 acre tract. The expiration of easement would be if the Tower ever went into a non use state. If 1031 is possible what can funds be invested in?

Submitted by: carrlitto


How much of the tax on House A is deferred toward the purchase of House B? When does the tax bill come due? After having owned it for five years and lived in it for at least three years?

Submitted by: Sway


I want to do this to buy more real estate and not get hit with capital gains tax.

Submitted by: g g


I rented my residence for seven years because I was living out of the country. Now I must move to another city. Can I live in the building purchased by the 1031 exchange, or must I rent it out?

 

If you are an investor who has decided to sell an investment property, you should certainly consider a powerful tax deferral tool provided by the United States government.

Section 1031 of the IRC allows owner to sell an investment property, defer 100% of the capital gains by reinvesting the proceeds into a “like-kind” investment.

Any property that has been held as a business, trade or investment qualifies for a 1031 Exchange. Two of the most common choices are the following:

1) Tenants In Common, or also known as a TIC investment enables a group of up to 35 investors to co-own a single real estate investment. TIC investments usually share the following features:

-The minimum equity usually ranged from $250,000 and up

-Each co-owner is a direct owner whereby they all share based on a pro rata share of income, appreciation of the property and all tax benefits.

-Each co-owner has the option of selling, gifting, willing his portion.

-Loans are usually already in place generally in the range of 5-13 years.

There are substantial benefits to owning a TIC Property, to list a few are:

-An investor can acquire with as little as $250,000 an instituation grade property.

-Monthly cash flow dividends

-Sheltered tax benefits

-Deductive Interest

-Zero management responsibilities

-Instead of putting all your money in one property, you can take diversify into high quality projects thereby diversifying by property type and geographic location.

-Extensive due diligence has already been conduced by the real estate sponsor, securities industry and the lender so that you already have all the information regarding the property without spending any money.

 

2) Free standing Triple Net Properties are very popular 1031 Exchange Properties. The typical triple net property is a national retailer, such as Walgreen’s, Home Depot, McDonald’s, US Bank, Lowe’s, Best Buy, AutoZone just to name a few.

 

Some common qualities include:

-Long term leases giving investor’s dependable income

-A+ real estate locations

-High quality tenants giving you peace of mind

 

At present the cap rates range between 6.5-9.0 depending on the quality of the tenant, location and the years remaining on the lease.

 

Utilizing a 1031 Exchange is a must for any investor thinking about selling a property. It’s highly recommended that one explore all his options, speak with a qualified CPA who is familiar with 1031 exchanges. Be sure to work with a investment specialist who can give you a large array of options and willing to spend the time necessary for you to make an informed decision.



By: Andrew Gitt

About the Author:

Ihor

A major money maker these days is real estate. If you have a chunk of extra cash, it is certainly a great investment if you can find the right area. A sure win nowadays seems to be California. Everyone is always flocking there for the year-round sun and beaches. California real estate is a big money-maker. If you’re looking to invest in a home to make a nice profit down the road, then certain areas of the sunny state should be considered. The prices always seem to do nothing but rise.

What many may not realize though is that Section 1031 in the Internal Revenue Service is a boon for a prospective investor, selling an investment property and wanting to make a profit by reinvesting in a similar property elsewhere in the country. This wonderful concept works on the principle of gain rolling from the old to the new. A 1031 Exchange, like any real estate transaction, involves balancing competing pressures in speed and quality.

Prospects can be sorted through online. If you’re moving to a specific area, there are websites to aid you in your search. You primarily want to find a home that will increase in value no matter where you decide to live. Finding the best deals on California land options is easier than ever before. The majority of us, when searching for a home, look for something that fits our budget, but we also desire a safe neighborhood. This can often be a difficult task.

Let’s face it, you have to fork out the bucks to be safe these days. At least in the more urban environments. The Internet allows you to really narrow down your search for an ideal California home. This makes it that much easier to stay within your price range.

When a close friend of mine ventured out West, my first thought was, why? He was craving the sunny beaches and abundance of amenities. It wasn’t long after renting a wallet-breaking apartment for several months, that he decided to invest in some fine real estate. After doing some searching, he found a small home that fit his price range. I have to admit, when he first described the home to me, I wasn’t that impressed. It sounded like a lot of bucks for an average home. However, after a year had passed, he decided to sell the house. This is where the payoff was clear. To my surprise he made a whopping 50,000 dollar profit on the piece of property.

Whether you’re looking to purchase a permanent spot in California, or simply doing some investing, it is good to check all the listings available. With the Internet, this should be no difficult task. You just may find that diamond in the rough that’s just waiting to become a goldmine.

Bear in mind prices vary by location, and the perspective buyer or seller can do a great amount of research online before ever enlisting the help of a professional realtor. For example, in southern California, it is possible to search tens of thousands of homes for sale in San Diego County alone in a variety of price ranges through the multiple listing service or MLS.

Several real estate publications are also available and can be found in stands at many convenient locations throughout the state. If you are interested in moving to a particular city, you can also contact the local Chamber of Commerce for information regarding the city and the surrounding area. Historically, property values in California have been rising steadily, so why wait?



By: Joe Bella

About the Author:

Suzann

Investing in authentic estate these time is a lot like singing Monopoly. In order to win, one must have the knack and ability to baraddition the trade of minus pleasing properties for those more expensive. chattels owners intent on appealing indigence to understand the many repayment of domestic Revenue language segment 1031 deferred trades.

While not very general, tax-deferred trades have actually been in the tax policy while 1921 and are among one of the most significant tax payments for genuine estate patrons. The key payment of a 1031 trade is that it allows patrons to dispose of properties lacking incurring a deposits addition tax liability. This article cleanly allows the earning brawn of the deferred taxes to work for the payment of the patron instead of the government.

As tax policy policy and gear have evolved overwhelmingly in promote of taxpayers – especially with honor to genuine estate – trades have become easier. A peddler hires a 1031 trained intermediary (QI) to essay the auction of a land as an trade. The QI holds the proceeds to stop the peddler from being in a payable spot. aptitude replacement land is identified inside 45 time after finishing, and some or all of those properties are acquired inside 180 overall time after the auction. For genuine estate trades, the properties just indigence to be worn in the trader’s afpassable or detained as an investment. This design is called the delayed trade.

If you feel that you havent learned anything new thus far, there is a whole new realm of information in the rest of this article.

While the delayed trade change is the most ordinary, many traders employ more creative strategies, such as contrary trades. A 1031 contrary trade is called for when the replacement land must be acquired before finishing on the relinquished land (if for example, a superior land is scheduled in a hot advertise, patrons would have to write a commit hurriedly to compete with other prospective buyers).

Previously, contrary trades were worn infrequently because the IRS untaken no guidance on the matter. back trades were considered a dull locale, and taxpayers moreover proceeded with caution or chose to prevent them.

In the forgotten, there were three central consideres to contrary trades: the “chaste” contrary consider, the trade-first (relinquished land parked) consider and the trade-last (replacement land parked) consider. The first was dismissed by most QIs because the trader cannot own the relinquished land and the replacement land at the same time.

The goal was to design an arms-segment transaction in which the QI (or an being designd by the QI) acquired moreover the relinquished land or the replacement land for the taxpayer and designd an trade, which should otherwise descend inside the policy and regulations involving to deferred trades. The trade-first and trade-last consideres became known as parking arrangements because the QI “parks” one of the properties in the QI’s name to stop the trader from owning both properties simultaneously.

The riddle of constructive ownership arose in these transactions. while the QI detained name to the land, all the repayment and burdens of ownership were transferred to the trader.

Questions honoring management of the parked land, lend arrangements, taxpayer advances to deposit the acquisition, exit plan, rigid worth versus passable advertise meaning and who was to grasp the tax repayment of ownership while the land was parked were ordinary. If the taxpayer retained all the burdens and repayment of ownership while meager lawful name was parked, it was feared the taxpayer would be treated as actually owning both the relinquished and the replacement properties at the same time.

As they say, knowledge equals power, so continue to read information on this topic until you feel you are adequately educated on the subject.



By: Charles Cox

About the Author:

Alexander

Submitted by: Rebelde9


how do I know how much will I pay uncle sam when I sell my rental properties and choose not to do a 1031 exchange? is there any ways to minimize taxes?

Over the last several years, real estate has been as hot as any other investment. It wasn’t until recently that real estate cooled a bit. During this time, we’ve all heard the stories of the easy money made investing in real estate. When money was easy, and there was no end in sight to the real estate boom, people were flipping houses like crazy. For many of these individuals, the 1031 exchange money could not be any easier. However, the times have changed. The downturn has taught even the most bullish real estate speculators that real estate can also go down in value. More than ever, investing in real estate, takes professional know-how, time, and resources to successfully invest in real estate. So, how does the average person invest in real estate, this day and age?

Well, there is a way, and it’s been around for quite some time. It’s called a Real Estate Investment Trust, or REIT. A Real Estate Investment Trust is a way for the small investor to invest in big real estate. A Real Estate Investment Trust is an organization that is set up to manage and invest in real estate professionally. You can purchase a Real Estate Investment Trust (REIT) via the stock exchange in the form of a stock, or privately. Private Real Estate Investment Trusts typically require that certain suitability criteria be met. Also, private REITs are typically longer-term investments, with liquidity considerations. Public Real Estate Investment Trusts can be bought and sold on the stock exchange and are considerably more liquid than their private counterparts.

Investing in a Real Estate Investment Trust can come in many forms. You can purchase a Real Estate Investment Trust that focuses on large-scale commercial real estate, for example. This would allow you to take part in major real estate deals involving 100 plus story buildings, that would otherwise be available to the ultra rich. Some Real Estate Investment Trusts may have their focus in apartment buildings or even new housing construction. The point here is that you can choose your Real Estate Investment Trust sector through one of these REITs. If you want a more professionally managed approach there are a large number of REITs actively managed through the purchase of mutual funds. This can provide for diversification, and individual real estate sectors.

Properly set up Real Estate Investment Trusts are tax-advantaged. This means that they are not taxed at the corporate level. However, they must be set up properly. It is required that REITs invest 75% of their funds in real estate. These requirements are met by income derived from mortgage or rent interest. Essentially, you’re relying on other parties for their expertise in the real estate arena. Going at it alone is tougher than ever these days. You have the typical headaches, like qualifying for a 1031 exchange, property taxes, escrow, title insurance, and so on. But, that’s really the easy part. When the real estate market only went up, the biggest worry for speculators was how to take advantage of a 1031 exchange and save on capital gains. Now, there’s much more to worry about, as real estate not only goes up, but it can certainly come down.

It’s important to keep in mind that Real Estate Investment Trusts also come with inherent risks. If real estate values plummet, and you have a large percentage of your assets exposed to Real Estate Investment Trusts you may experience declines, as well. This is where diversification is very important. The standard Real Estate Investment Trust me diversify you within different types of real estate, but you should always practice further diversification. Investing in different asset classes, sectors, and the life will provide you with further diversification. Make sure to work with a qualified investment advisor or do your due diligence when investing in any type of Real Estate Investment Trust.



By: Mike Trudeau

About the Author:

Salli

Many homeowners have heard of a “1031 Exchange,” but few understand the basics of what an exchange actually entails. Today I want to cover just a few of the basics of the process, as it can be an invaluable method of homeownership for investment homeowners.

What is a 1031 Exchange?

Put simply, it is the sale of one property in exchange for the purchase another property of similar value without the required payment of capital gains tax, all performed within a specific time frame. An example of when you might use a 1031 Exchange, as opposed to selling a home and purchasing a new one outright: you want to sell your current vacation home and purchase a new, similar one that has a few better features. You have not yet owned your current vacation home for two years, so you are subject to substantial capital gains taxes when you sell it. If you were to use a 1031 Exchange, you could “exchange” your current home for a new one and be relieved of the capital gains requirement. It is this difference between “exchanging” and not simply buying and selling which, in the end, allows you, the taxpayer, to qualify for a deferred gain treatment. In a nutshell: sales are taxable with the IRS and 1031 exchanges are not.

Important Rules of 1031 Exchange

1. The total purchase price of the replacement “like kind” property must be equal to, or greater than the total net sales price of the relinquished, real estate, property.

2. All the equity received from the sale, of the relinquished real estate property, must be used to acquire the replacement, “like kind” property.

1031 Timelines and Rules

Identification period - the seller has exactly 45 days from the sale of the original property to identify other replacement property(s) that he proposes or wishes to buy.

Exchange period - the period during which the seller of the relinquished property must receive the replacement property. This period ends exactly 180 days after the date on which the person transfers the property relinquished or the due date for the person’s tax return for that taxable year in which the transfer of the relinquished property has occurred, whichever situation is earlier. To request more information about 1031 exchange, please click here: 1031 Exchange and select the reports you would like!



By: Irene Gaffigan

About the Author:

Eunice

1031 Exchanges, A Tax-Deferred Real Estate Strategy

By David N. Chazin In conjunction with Sagemark Consulting, a division of Lincoln Financial Advisors, a registered investment advisor. Mr. Chazin is a regular contributor to PlannerConnect

This article is for educational purposes. 1031 exchanges have restrictions and limitations.

When the time comes to sell your real estate, some owners of highly appreciated real estate could be staring at a substantial capital-gains tax bill. A section of the Tax Code may help you convert your appreciated property into an income stream—while deferring up to 100% of the capital-gains tax that would otherwise be due on the sale.

This transaction, known as a “1031 exchange,” is named for a section of the Internal Revenue Code that authorizes this exchange. With a 1031 exchange, you can dispose of an investment property without paying an immediate capital-gains tax (or triggering a depreciation recapture tax) if the entire proceeds are used to purchase full or partial interests in “like-kind” properties as defined by the IRS code.

The current capital-gains tax savings could be substantial. In addition to the federally imposed capital-gains tax of 15%, any gain on the sale of a property could otherwise be subject to state income tax. That means your total tax bill could run as much as 20% or higher.

In addition to the tax deferral, 1031 exchanges may provide real estate owners with an opportunity to help improve their lifestyles —for example, by exchanging a highly management-intensive property for one or more properties that are less demanding to manage. These transactions can be beneficial to real estate owners with appreciated properties that make up 5% to 50% of their net worth.

Reduced Stress and a Higher Level of Potential Income

It sounds simple enough, but with the Tax Code, there is always a hitch. In this case, the IRS has set out a long, stringent set of guidelines that define qualified transactions. But the principal issue is that proceeds from the sale of one property must be reinvested in a “like-kind” replacement property within a certain amount of time to avoid taking that tax hit. These properties don’t have to represent a one-for-one swap.

Investors can use the sale from one property to buy tenant-in-common, or TIC, interests in a variety of different properties, opening up an opportunity for strategic planning. For instance, investors who prefer to take a less active role in real estate management can trade a high-maintenance portfolio of rental properties for hands-off interests in other commercial ventures.

Through what’s known as a TIC transaction, you can reinvest the proceeds of those exchanges into a non-management, fractional interest in a larger commercial property. You get a share in the rental income without having to assume any responsibility for the day-today management of the property.

This option is particularly attractive for investors looking to boost income potential. The 1031 exchange may end up generating a higher level of income for the property owner than they had earned on the previous property. More importantly, you may be able to have a more diversified real estate portfolio than you might have had to begin with.

For instance, consider the case of a real estate owner who plans to reinvest the proceeds from a $5-million property into a $3-million property. The owner also plans to distribute the remaining $2-million in proceeds from the exchange across a variety of TIC investments. With the exchange of a single $2-million property, the owner could invest in as many as eight different TIC properties, assuming a standard $250,000-minimum investment in each TIC transaction.

Putting the ‘Estate’ in Estate Planning

TIC exchanges may have the ability to be customized to fit into a real estate strategy. For instance, you may be able to increase your cash flow by exchanging a piece of raw land and investing in one or more income-producing properties. Or you could possibly decrease your current tax liability by exchanging a fully depreciated property and using those gains to buy more leveraged property, thereby increasing your depreciation expenses.

TIC exchanges may be a particularly important part of an estate plan in which the primary asset is a single piece of property—for instance, a family farm that future generations don’t want to maintain. The owner can exchange that land and then divvy that money up into several smaller properties. After the owner’s death, each heir will inherit their own piece of property that they can manage as they see fit. And with the death of the owner, the heirs receive a one-time step-up in cost basis, effectively erasing the deferred tax liability.

As with any valuable asset, managing the exchange of real estate tax efficiently is a complex undertaking. But with a 1031 exchange you may be able to diversify your holdings without any current capital gains tax liability.

David N. Chazin is part of a network of qualified financial planners affiliated with PlannerConnect. You can reach him at David.Chazin@LFG.com, or to connect with a financial planner in your area please call (800) 318-7848, or visit the PlannerConnect website.

A 1031 Exchange is available to accredited investors only. ($200,000 yearly income and $1,000,000 net worth). A 1031 exchange may be subject to special risks including illiquidity. A 1031 prospective investor should consult with their own legal, tax, accounting and financial advisor before investing as tax advantages may be lost if not executed within established time constraints. A 1031 exchange prospective investor should carefully consider the charges, expenses and risks of a 1031 exchange and whether it is appropriate for them based on their financial situation, objectives and time constraints.

Any discussion pertaining to taxes in this communication (including attachments) may be part of a promotion or marketing effort. As provided for in government regulations, advice (if any) related to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. Individuals should seek advice based upon their own particular circumstances from an independent tax advisor.

David N. Chazin, is a registered representative of Lincoln Financial Advisors, a broker/dealer, and offers investment advisory service through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor,3000 Executive Parkway, Suite 400, San Ramon, CA 94583, (925) 275-0300. Insurance offered through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances.



By: David Chazin

About the Author:

Evangelia

If you are selling an investment property and planning on re-investing then the 1031 exchange is right up your alley. A 1031 exchange is basically a tax shelter allowed by the IRS where you sell an investment property and then re-invest the profit from that sale into another property. Now, keep in mind that you must re-invest the entire amount from the sale. This is not to say it has to be in one property, as long as you re-invest the full amount it does not matter if it is spread amongst several properties. In doing the exchange, an intermediary or third party, usually a company or financier will hold the funds from the sale until a”like-property” is found whereupon the funds will be released to complete the sale.

From the time that you sell your investment property you then have 45 days to identify the property or properties that you intend to purchase with the proceeds. There are also a few safeguards built into the process to ensure that it is not abused. One of these is called the 95% Exception rule. This rule states that you must acquire 95% of the property that you declare an intent to purchase or “identify.” Another guideline is the fact that once your sale property closes, you have six months from that date to close on your identified properties.

Almost any kind of property qualifies for a 1031 exchange except for your primary residence. This makes the 1031 exchange a great opportunity for beginning investors to make their mark on the investment market. For complete information on 1031 exchanges it’s a good idea to check the IRS web page which features complete and comprehensive information on everything that is involved with this type of financial transaction. There is also a healthy selection of companies that operate as the financial intermediary that can provide accurate info for the investor.



By: Frankie Bastek

About the Author:

Rozele

Submitted by: macmo187


how long do i have to hold onto the property to use a 1031? what requirements are there to use a 1031?

A 1031 exchange is a tactic used by real estate investors to indefinitely defer tax liability on a property’s sale. This is achieved by giving the rights to a property one would like to sell to an intermediary, who holds on to the funds gained from the sale of the relinquished property and uses them to buy a replacement property that complies with the rules set out in Section 1031 .

While the present popularity of the 1031 could lead you to believe that it only recently came on the scene, this is untrue. Actually, the history of the 1031 extends all the way back to 1921, although at its conception, it was quite a bit different than what we today think of as an exchange. Section 1031 really came into its own in the 1970s, which saw a host of significant modifications in the manner that exchanges were regulated. These modifications paved the way to a farther-reaching conception of the process and also generated greater interest among property investors.

The indefinite capital gains deferral an exchange grants to the taxpayer may, at first, seem to be a sort of gift from the US government, however it is, in reality, closer to an interest-free loan, because there is an expectation that the investor will “repay” the extra funds gained from the deferral by paying capital gains taxes upon the eventual sale of a replacement property. In addition, this interest free loan may be kept indefinitely; an investor can choose to conduct any number of exchanges before ultimately deciding to sell outright, at which point capital gains taxes must be paid.

The 1031 exists as a mutually advantageous agreement between investors and the U.S. government, providing a benefit for the U.S. economy as well as the individual taxpayer. By viewing the transfer of value in an exchange as representing a continuation of a preexisting investment rather than as a separate transaction liable for taxation, taxpayers are given the opportunity to move their funds to the most profitable possible investments, which, in turn, boosts the economy by bolstering job growth.

Like anything else, the 1031 exchange has its detractors. Some advocates of change in Section 1031 will argue that the tax free profit gained by to the taxpayer in a 1031 lends them an unreasonable advantage. Another frequent concern is that the strict time limits attached to some aspects of the exchange procedure may engender a frantic rate of buying, resulting in an increase in the cost of replacement properties. These complaints, however, are only loosely based in reality, and the odds that the 1031 exchange procedure will see noteworthy changes in the near future are quite slim. In general, most will agree that Section 1031 is greatly helpful to all parties involved, allowing taxpayers increased profits on the sale of property while also encouraging job growth and consequently promoting the greater good of the country as a whole. There is little doubt that the 1031 will be a mainstay of the property investment business for years to come.



By: Ajay Albertson

About the Author:

Jonthan

Submitted by: First NameYumai L


I was listening to a song earlier, and the singer mentioned “Eranda” but pronounced it like “EraNNNda.”
I’ve actually heard the “NNN” or “MMM” (I couldn’t hear the difference) in a lot of songs like “Nande” or “Nan” or basically with a lot of songs.

Do you always do that? Or is that just with songs?

Submitted by: cally.gally


How is the best way to advertise a 1031 advantage and have you or your relatives done this recently.

Submitted by: northcote23


I have a number of tenants-in-common (TIC) investment properties in my inventory at http://nnn1031.blogspot.com which I’d like to market to 1031 real estate investors. What would be the way to go about contacting them? Trade publications? Email lists? etc? Thanks

 

If you’re contemplating a 1031 tax exchange for your next real estate transaction, you’re not alone. Every year, thousands of savvy investors use the toolkit available via a 1031 tax exchange to increase the value of their investments without losing crucial capital to taxes in the interim. 1031 exchange transactions represent a valuable tool for investors: this set of rules and mechanisms allows investors to delay the payment of capital gains taxes during the time that they are actively involved in the real estate marketplace.

1031 exchange transactions are not difficult – but they do require a decent degree of coordination and organization. This means that it is important that you work with a solid team of reliable experts through and through in order to ensure the success of your transaction.

One key person you’ll need on your team is a reliable tax professional. Why? Simple. A 1031 tax exchange is a procedure designed to take advantage of specially written language in the U.S. tax code. 1031 exchange transactions, then, have very specific tax consequences for your business both at the time of the exchange and later on down the road when you eventually engage in a standard taxable real estate transaction.

If you attempt to navigate these byways of the tax code on your own, you may come out just fine – but it’s highly likely that you’ll instead come out not exactly where you want. There are simply too many opportunities to slip up and make a poor decision or forget to follow through on a detail.

Working through a 1031 tax exchange is the sort of procedure for which one absolutely should have a qualified tax professional on hand: the assistance of an experienced individual looking at the tax laws with your best interests in mind is crucial for the success of your transaction and your finances.

There is also another individual who will be important to the smooth functioning of your 1031 tax exchange: your qualified intermediary. In a 1031 exchange, your qualified intermediary is the person or entity who holds the proceeds from the sale of your relinquished property in an insured bank account until they are needed for the purchase of your replacement property.

At that time, the qualified intermediary is responsible for transferring the funds to the seller of the replacement property. Without a qualified intermediary, your 1031 tax exchange cannot move forward: IRS rules for non-recognition of gain hinge on the availability and reliability of this person. In any 1031 tax exchange, then, it is imperative that you have a seasoned team of professionals on your side working in your best interest.



By: Adam J. Morien

About the Author:

Deborah

As a real estate investor, you are aware that each and every dollar that you have invested is compounding your wealth, and, in contrast, that every dollar not working for you represents a lost chance to increase your funds. So, when the time comes to put your property up for sale, you have two choices. The first way in which you can cash in on a piece of property’s appreciated value is simply to make a outright sale and recognize the profits as a gain. This means that you’ll have to pay capital gains taxes on the sale proceeds. But every time you pay money to the government you are throwing away money that could be put back into investment.

The second and more lucrative option is to conduct a 1031 exchange. A great way to keep more of your investment funds working for you is to perform a 1031 exchange rather than making an outright sale on a property. A 1031 exchange has a provision of non-recognition; this means that you don’t have to pay the taxes immediately following your sale; in fact, you can defer the taxes for an indeterminate time span, while your funds are compounded by the extra income produced by investing your tax deferment.

By way of example, imagine that you are the owner of several small investment properties, like triplexes or duplexes, whose values have appreciated during the time you have owned them. At this juncture, your instinct may be to sell these properties up front and collect on your investments. A wise investor with an eye to the future might choose to conduct a 1031 exchange and place the money gained from these properties towards the purchase of another piece of investment property, which will, itself go on to appreciate in worth over time, meanwhile continuing to increase your wealth. The best part of all is that the money at your disposal as a result of deferring capital gains taxes will function to heighten your capacity to leverage for further loans, building up your future profits.

1031 exchanges are not limited to buildings and land, either. It is possible to conduct a 1031 exchange on any type of real estate you are holding for investment in a business or trade, as well as some types of personal property, from a backhoe or crane to an aircraft or collector car. In fact, 1031 exchanges are especially beneficial to those who have invested their funds in collectibles or antiques such as collector cars, in light greater capital gains liability on the sale of these types of items. You cannot, however, exchange things like stockor interest in an REIT.

So, next time you find that you are planning a sale on an appreciated piece of real estate or other investment property, pause for a moment and consider the future dividends you could gain were you to exchange. If you choose an exchange rather than selling outright, you can build your wealth over time and come out on top .



By: Ajay Albertson

About the Author:

Jooran

Prudent investors are now taking advantage of one of the last remaining IRS Codes to defer taxes………the 1031 Exchange. The IRS Section 1031 exchange (like-kind) is not a new tax tool, in fact the 1031 exchange has been around since the 1920’s. The U.S. Income Tax Code allows individual investors, as well as corporate owners of real estate to sell their property and defer their capital gains by exchanging the proceeds from the sale of their asset into an investment in another “like-kind” property. The 1031 works for retail, commercial, office, industrial, multi-family and land.

In order to affect the 1031 exchange, the seller must place funds from the initial transaction into a special trust account designated specifically for this purpose. The types of accounts are usually preserved by banks, trusts or other financial institutions. It is very important to pick a very reputable intermediary. Typically an intermediary helps effectuate the entire 1031 process.

When an entity decides to sell a property, they have 180 calendar days from the closing their initial property to complete the 1031 exchange. The first 45 days is considered the designation period whereas the seller must identify and designate properties that they wish to exchange into. The seller may designate up to three properties or may designate a group of properties with a combined value that does not exceed 200% of the value of the initial property. If no properties have been identified by the end of the forty-five days or no property designated at the end of the 180 day period is completed, the trust is liquidated and the trust will be taxed at the current capital gains rate.

A new type of exchange was introduced a few years ago called a Reverse Exchange. This allows an investor to acquire a “like kind” replacement property prior to disposing of an existing property. The same time periods apply here as in a traditional 1031.

In order to affect the 1031 exchange, the seller must place funds from the initial transaction into a special trust account designated specifically for this purpose. The types of accounts are usually preserved by banks, trusts or other financial institutions. Typically an intermediary helps effectuate the entire 1031 process. Regardless, the application of a 1031 exchange to any transaction can only be determined after careful study of a taxpayer’s particular facts and circumstances. It is always a smart idea to consult with your tax advisor, accountant, attorney, real estate agent and/or intermediary.

1031 Exchanges and Net-Leased Properties

Initially, when the IRS decided to reduce capital gains to fifteen percent, many investors chose to take the tax hit rather than defer the gain utilizing a 1031 exchange because their reinvestment rate was tremendous due to the go go days of the stock market. However, these days deferring the gain makes more sense when one can trade into a single-tenant net leased property at a stable rate of return.

For more information about 1031 Exchange or for more related subjects about TIC please review this webpage http://www.triplenetleasefor1031.com



By: Groshan Fabiola

About the Author:

Tommi

Submitted by: Jeff W


I had to file an extension for taxes because I had to report a 1031 exchange that was still in the process…

Now I am trying to fill out form 8824, but it’s really confusing.

Any suggestions?

TIC: Qualified Intermediaries are usually referred to as 1031 Exchange Accommodators by anyone engaged in real estate business and some even call them the 1031 Exchange Facilitator whose main functions are to complete the required legal documents so that all applicable laws as well as regulations and even rulings are complied with.

In fact, there are no doubts as to how important are the needs of assigning TIC: Qualified Intermediaries into each Sale and Purchase Agreement or Contract and also Escrow instructions because when they are present before concluding the sale or purchase of the TIC interests it would help qualify the transaction as 1031 exchange. The fact of the matter is that when a transaction is closed without using TIC: Qualified Intermediaries, it would risk being disqualified from 1031 exchange treatment.

Receives The Proceeds From The Transaction

In fact, besides stating beforehand that you are actually engaging in 1031 exchange, you also need to use TIC: Qualified Intermediaries to receive the proceeds from the transaction at close and who will also hold onto the money until the close of the transaction in order to qualify for 1031 exchange. Furthermore, using such intermediaries could involve either individuals or entities and they are in fact the middlemen in any exchange who provide oversight, do the paperwork, deal with escrow services as well as provide necessary expertise that will assure that the exchange will in fact qualify as 1031 exchange under the Internal Revenue Code’s Section 1031.

Since any 1031 exchange is sure to be a complicated process it is always a good idea to use TIC: Qualified Intermediaries to simplify the process that in fact will then feel just like any normal transaction. Of course, you will need to pay fees for using the services of the TIC: Qualified Intermediaries and in fact the Qualified Intermediaries industry has not been too closely regulated which means that you would need to exercise special care so that you only select the best and most reputable TIC: Qualified Intermediaries to handle your transaction.

If you need help in finding suitable TIC: Qualified Intermediaries, you could always check out 1031 Exchange Place where a complete database related to the names and addresses of different TIC: Qualified Intermediaries from all parts of the United States is maintained. Once you have selected some prospective TIC: Qualified Intermediaries, you will then need to look at their reputation, how well they bond with you, and how competitive their fee schedule is as well as how their financial strengths are.

Needless to say, you would be best served if you chose only that TIC: Qualified Intermediaries who have the required level of expertise in the 1031 exchange industry.



By: Kathryn Landry

About the Author:

Shuang

Submitted by: cgarcia7879


Im a specialest in the 1031 exchange. I save people tons of money uncle sam would normally would take. California investers are the ones right now benifiting from this.

Section 1031 of the Internal Revenue Code (IRC) defines the 1031 exchange. 1031 exchange also known as Like kind exchange specifies that if an asset that is most often a land or a building, is sold and the proceeds of the sale are then reinvested in a similar type of asset then there is no gain or loss and the capital gains taxes are deferred.

A 1031 exchange is an ideal way to suspend the taxes that are immediately due after the first sale. For instance if an investor purchases a residential property for say $250,000 and sells it for $30,000 after 5 years, the profit of $50,000 which he incurs will be subject to capital tax. But if the profit so accrued is invested in another similar kind of commercial real estate, there will be no taxation on it. So his taxes will be deferred to some date in future.

1031 exchange is a source to save your money being spent in capital taxes, but on the same hand an individual should be careful and keep few points in mind before entering this exchange.

· Before entering the 1031 exchange, whether as an investor or a seller it is better to do a little research and consult your tax advisor to get an estimate on your tax exposure.

· Several assets such as boats, horses or cattle etc. qualify for the 1031 exchange but on the same hand only real estate can be exchanged for a real estate. So the real estate should be an investment property. A building purchased for renovations and selling and land purchased for construction of houses etc. cannot qualify for 1031 exchange because in such instances the owner does not intend to hold on to them for a period of time for investment reasons.

· Further in order to have a cent percent tax deferment on the disposition of property, there are three basic steps to be followed. Firstly right after the sale of the original or relinquished property, it is necessary to acquire a replacement property as early as possible. The replacement property must be equal to or greater than the value of the relinquished property. Secondly those who wish to have 100% capital tax deferment must reinvest all of their net equity from the surrendered property in the replacement property. Finally one must assume debt on their replacement property that is equal to or greater than the debt on the original property. In case the debt on your replacement property is less than the debt on your original property then people seeking complete capital tax suspension should put in additional cash to balance the exchange transaction.

· There are certain rules to identify an adequate replacement property. For instance according to the three-property rule you may identify up to three replacement properties overlooking their fair market value. You may not purchase all the identified properties but it is best to have alternatives in hand. While under the 200 percent rule you are allowed to identify more than three replacement properties only on the condition that the fair market value of these properties does not cross 200 percent of the contract price of the property sold. In the 95 percent rule if the fair market value of more than three identified properties exceeds 200 percent of the value of the original property, the exchange can still hold id the 95 percent of the total cost of all the properties on the list are purchased.



By: Mansi Gupta

About the Author:

Shou

Submitted by: nkasoff


If a piece of property acquired in a 1031 exchange requires repairs at the time of purchase, can 1031 funds be used for these repairs if the work is done within the 180 day window? I know that repairs could be done by the seller and added to the cost basis of the property, but I am purchasing “as is” homes where the seller is unwilling to do this. In the case of major repairs such as plumbing or HVAC, it would be nice if I could meet these costs from the 1031 pool instead of liquidating 1031 funds, and then having to amortize the cost of the repairs.

Submitted by: dummy


I bought a rental property lthrough 1031 exchange last year in another town, but now want to move there to live. What are the tax implications? Will I have to pay the deferred capital gains taxes?

 

Considering a 1031 tax exchange for your next real estate transaction? If so, you’re already on the right track: a 1031 exchange represents a great opportunity for real estate investors to temporarily defer payment of capital gains taxes on their investments. The legal 1031 tax exchange has helped many investors rapidly grow the value of their holdings and keep control of their tax obligations. If you’re new to the 1031 exchange process, however, it is important to understand an important concept: the qualified intermediary.

Your qualified intermediary must be an approved, uninvolved third party. This person or entity is responsible for holding the proceeds of your first sale until they are needed to purchase your replacement property. This person or entity will also handle many of the detailed paperwork requirements inherent in taking any such 1031 exchange successfully from start to finish.

The “uninvolved” part of the qualified intermediary stipulations, however, can be difficult. This rule notes that you cannot employ as a qualified intermediary anyone who has acted as your agent in the past two years – meaning that any brokers, real estate agents, attorneys, or bankers with whom you have a pre-existing relationship are out. The rationale for this stipulation is unsurprising: the regulatory authorities want to be sure that the qualified intermediary will in no way be tempted to use the proceeds of the sale in a questionable manner that might be in your benefit but at odds with the law.

One important thing to keep in mind, however, is that you can work with a qualified intermediary if you have not entered into a transaction with this person within the past two years. This two-year window is calculated from the date that your relinquished property (the original property you are selling) is officially transferred to its new owner. In the case of a 1031 tax exchange with multiple relinquished properties, the first relinquishment date is used. This clause means, then, that you may use a qualified intermediary with whom you have a former relationship that is no longer current.

This important exclusion allows you to do business with individuals and entities with whom you have some degree of familiarity and comfort – without running the risk of going afoul of regulations and endangering the integrity of the exchange. No matter who you choose to act as your qualified intermediary, remember that the choice of a qualified intermediary is critical to the success of your 1031 exchange: this individual or entity will play an incredibly important role in the completion of your 1031 tax exchange.



By: Adam J. Morien

About the Author:

Boris

Submitted by: mrshife


I am interested in doing one, but I am looking for some testimonials about the 1031 exchange experience. Thank you in advance for your help.

Submitted by: Drew


I have a property/home in which I am putting on the market. If I sell the property on a lease-option to buy or owner financing, would I still be able to do a 1031 exchange? If so, then how and when (upon signing the contract or pay-off (2 years))?

Please include details in your answer.

I can also add details if more info is needed to the question.

When you run your own business, paying taxes can really take up a lot of your earnings. However, there are ways in which you can save on tax and the 1031 tax exchange is one of them.

The 1031 tax exchange is one of the most common types of tax deferral strategies used today. A 1031 tax exchange allows you to sell either an investment property or a business and then attain a property or business at the same, or for a higher, price. This has to be done within 180 days. It is the ideal way for real estate developers to save money on their taxes.

What You Should Know About 1031 Tax Exchange

Many people have never heard of the 1031 exchange and so they have no idea whether they could benefit from it or not. Basically, the 1031 tax exchange was created in 1990 and it was designed to help real estate investors. They benefit by re-investing the gains they make on similar properties which they exchange for their old ones. While it may seem like a simple tax deferral procedure, it is vital that you learn all about the 1031 exchange rules.

The capital made on the exchange should be dealt with through a qualified intermediary. That way you cannot be accused of keeping the money for financial gain. You have to invest the money into an account which should stay untouched until the end of the tax year. Now in order to benefit from the exchange, 1031 exchange properties have to be identified within 45 days of the sale of your previous property. Then the purchase should be completed within 180 days. Any property purchased later than that and you will not be entitled to the tax deferral.

While the benefit of capital gains is substantial within the 1031 tax rules, there are also a few other benefits that are not always noticeable straight away. These include:

· You can add to your assets

· You could upgrade to a property with a higher value

· You can benefit from investing in lesser known markets

All of the above can really help you out. It is always a good thing to have more assets. Also if you follow the 1031 tax properly rules you could benefit by gaining a higher priced property. This is because as your existing property appreciates in value, you can then exchange the property for a higher value property because of the increased cash flow.

Finally if you have a rental property which has appreciated in value in a good market, you could re-invest the property into a lesser known market which is set to become a hot in the near future. This could potentially get you a lot of money.

So if you are looking to benefit from the 1031 exchange then ensure that you acquire the 1031 exchange properties within 180 days of the sale of your old one. The 1031 exchange rules have to be followed closely. If they are, you really can benefit from tax deferral at the end of the year.



By: Garry Neale

About the Author:

Hermine

Submitted by: Stukish


I own a building and I converted it from apartments to condos. I have sold four (of six) and I want to take the proceeds from the last sale or two and put it into a 1031 Exchange. I have not sold them yet.

May I do this and buy a piece of land? Then I would use the land to build more condos.

In the past I setup a 1031 Exchange for the sale of residential property to purchase this apartment building.
In a like-kind exchange, the property being acquired must be similar in nature and character to the property being relinquished and must be located in the United States. The IRS is quite liberal in its interpretation of like-kind properties and views almost all real estate as similar in nature or character. Thus, virtually all real property is like-kind property and can usually qualify under the like-kind exchange rules. Whether the real estate is improved, unimproved, productive, or nonproductive is not relevant; any mixture of office buildings, apartment buildings, factory buildings, shopping centers, stores, hotels, motels, farms, ranches, and parking lots is permitted.

A 1031 exchange or Like kind exchange is defined by section 1031 of the Internal Revenue Code or the IRC. According to IRC if an asset, most often some form of real estate such as land or building is sold and the proceeds of the sale are re-invested in a similar asset then there is no gain or loss and the deferment of the capital gains taxes is permitted.

In order to qualify for the 1031 exchange, a set of rules is to be followed. Firstly both the relinquished as well as the replacement property must be held either for investment or for productive use in a trade or business. It is not possible to exchange a personal residence.

Secondly make sure that the nature of the assets is the same. For instance real property must be exchanged for real property and nothing else, personal property is to be traded with personal property only.

Thirdly the proceeds of the sale must be invested in a like kind of asset within 180 (property must be identified within 45 days) days of sale.

A 1031 exchange is a perfect way to suspend the taxes that are immediately due after the first sale. For instance if an investor purchases a residential property for say $250,000 and sells it for $30,000 after 5 years, the profit of $50,000 which he incurs will be subject to capital tax. But if the profit so accrued is invested in another similar kind of commercial real estate, there will be no taxation on it. So his taxes will be deferred to some date in future.

A 1031 exchange is akin to an IRA or 401K-retirement plan. When the assets are sold under the tax-deferred retirement solutions, the taxable capital gains would be kept in abeyance till they begin to cash out of the retirement plan. The tax-deferred exchanges or real estate investments also run on the same principle for till the time the money keeps on rotating i.e. re-invested in some or the other real estate, the capital gains taxes are subject to suspension.

The time an investor makes up his mind to follow a 1031 exchange, he should understand the process carefully with the help of a Qualified Intermediary. A Qualified Intermediary or an Accommodator is a corporation that performs the task of facilitating the 1031 exchanges. It is better to contact a Qualified Intermediary as soon as possible.

After you acquire complete information from the QI, display your investment property in the market. Once the offer to purchase the investment property is accepted, escrow for the sale is opened and preliminary title report is developed and produced. Following this the QI sends required exchange documents to escrow closer for signing at property closing. The moment the escrow is closed on the renounced property, according to the law within the first 45 days the investor has to identify replacement property. After a time of 180 days from the time the escrow closed, investor closes on the replacement property that was identified by him and hence the task of exchange is over.

The primary problem in 1031 exchange is the identification of the replacement property within tenure of 45 days after the sale of abandoned property. The extension to the 45 days is only on the front end and is possible with judicious planning about alternatives before the closing of the sale.



By: Mansi Gupta

About the Author:

Line

Property owners that are looking to sell in Houston, Texas may benefit with a 1031 exchange, which will provide them with tax benefits.

These benefits come because with a 1031 exchange, a property transaction is viewed as an exchange of one property for another, instead of selling one property and then purchasing another.

Once a property is sold, the owner is taxed on the sale of a property. If the property instead is exchanged, there are no taxes to be applied. However, just because these exchanges may be an available option for Houston, Texas property owners, there are rules and regulations that need to be adhered to before an owner can be eligible for a 1031 exchange.

The 1031 Tax Exchange is outlined in the U.S. tax code and treasury regulations. In order for a property to be eligible for these types of exchanges, the property must fall within the boundaries outlined.

The first rule is that the property that is being exchanged must be “like” property. For instance, any property that is located within the United States is considered “like-kind.”

Property outside of the United States is not so property cannot be exchanged outside of the country. This is another reason why 1031 exchanges may be beneficial for property owners in Houston, Texas, because the property will most likely be located in Houston.

Also when looking at “like-kind” property, the property that is being acquired must be of equal or greater value than the property that it is being exchanged for.

There is also an exception rule within the 1031 Tax Exchange. Certain types of property may be excluded, even if they are located within Houston, or other areas of the United States.

These exclusions include: property that is being held for sale for a profit, inventories, stocks, bonds, and notes, other securities or evidence of indebtedness, if the owners are looking at a partnership, and other beneficial interests.

Then there is the exchange component of the 1031 Tax Exchange. For property owners to be eligible for the 1031 Tax Exchange, the property must actually be exchanged, instead of the property being sold and then the owner using the money from the sale of that property to purchase another. That type of transaction would be viewed as a simple sale of property and would not be eligible for a tax exchange.

Another rule written into the U.S. tax code states that any funds from the original sale of property, must not go to the property owner or the property owner’s agent. Instead, they must be given to a qualified intermediary. That qualified intermediary is generally an individual, or company that works exclusively with dealing with 1031 tax exchanges.

They must have no other contact with the owner other than serving as a qualified intermediary for the exchange that is about to take place. The intermediary will be responsible for holding funds related to the exchange and for distributing them as needed. If in the end there are proceeds that are rightfully the owners, those funds will be taxed.

In addition to the different rules that accompany a 1031 tax exchange, there are also certain timelines that must be adhered to. There are two timelines specifically that must receive particular attention. The first timeline is the Identification Period.

This refers to the amount of time that a property owner has to find replacement properties that he is interested in purchasing. This time period is within 45 days of selling the original property. The 45 days is 45 days exactly and includes holidays and weekends. This timeline will never be extended and if an owner cannot find replacement properties within that time, the property that had been sold will no longer be eligible for a 1031 tax exchange.

The other timeline property owners must concern themselves with is the exchange period timeline. This refers to the period of time that a property owner selling his property must become owner of another property.

The time period for this is 180 days from the time the original property is sold. The time period is over on the date the property is fully relinquished or when the person’s tax return for that current year is due, whichever date comes first.

So while property owners in Houston, Texas may want to further investigate 1031 Tax Exchanges to see if it’s possible to receive tax benefits, it’s important to fully understand this tax code to ensure that you meet all the rules and requirements that will make you eligible.



By: Paige Martin

About the Author:

Seamus

Submitted by: insurancelawcase


I would like to form a company/business that facilitates real estate 1031 exchanges, in other words I want to become a company that is Qualified Intermediary.
What are rules and regulations for forming such company/business?
What are the qualifications required?
I have no law degree, do I have to be an attorney?
Thank you.

If you’re involved in the real estate investment business, you know that being savvy about how you manage your sales and purchases can make a huge difference in the success of your business. Smart real estate investors, then, know that a well-planned and well-executed 1031 exchange is one of the best ways to preserve and accumulate real estate wealth. The IRS specifically designed 1031 tax exchanges to allow people who own real estate for investment or business purposes to effectively maximize the growth of their business’s worth over time: 1031 tax exchanges provide investors with an incredible tool for wealth management and development.

The 1031 exchange process grew out of a need to solve a fairly common investment problem: how can an investor successfully manage and leverage taxes to the long-term benefit of his or her business? To understand the 1031 tax exchange process, you must first understand the history. Consider the following scenario: ten years ago, you purchased an investment property for $200,000. Today, that property is now worth $300,000. You’re pleased with the growth in the property’s value – and you’d like to further the success of your business by selling that property and investing the $300,000 in a different property that you believe represents a better opportunity for long-term growth. You’ve found a great property across town on the market for $300,000 that meets all your needs.

When you sell your current property, however, you won’t walk away with $300,000 Why? In this very simple example, let’s temporarily ignore closing costs and broker fees. On a very basic level, your property has brought you a capital gain of $100,000 over the past ten years. When you sell that property, you will have to pay capital gains tax on that $100,000. Assuming a 15% rate, then, you walk from your sale with $285,000 – which is not enough to purchase that property across town on the block for $300,000. Your tax obligation, then, has handicapped your purchasing power.

With a 1031 exchange, the IRS allots investors a mechanism by which they can immediately reinvest the proceeds from a real estate sale without paying capital gains taxes in the interim. 1031 tax exchanges allow you (the investor) to sell a property and leave the proceeds in the care of a qualified intermediary while you seek out a replacement and complete the purchase. The capital gains taxes you owe are not erased – but they are deferred during the time that you are actively involved in the real estate investment business. In the above situation, then, you WOULD be able to purchase that $300,000 property across town because you would not find yourself paying capital gains tax at the time of your initial sale. The 1031 exchange process, then, provides investors with a mechanism for maximizing buying and investing power in the real estate market today in exchange for delaying tax payments until tomorrow.



By: Adam Morien

About the Author:

Judy

Do you have an investment property that you would like to sell, but defer the capital gains taxes? If so, then you need to consider a 1031 exchange:

A 1031 exchange, otherwise known as a "tax deferred exchange" is a strategy and method for selling one investment property and then proceeding with an acquisition of another property, all of which must happen within a specific time frame as set by the rules of the Internal Revenue Service. It is because you will be "exchanging" and not simply buying and selling a real estate investment property that allows the taxpayer(s) to qualify for a deferred gain treatment. Sales of real estate are taxable with the IRS and 1031 exchanges are not.

NOTICE: Due to the fact that exchanging a property represents an IRS-recognized approach to the deferral of capital gain taxes, it is very important for you to understand the rules involved. It is within the Section 1031 of the Internal Revenue Code that you can find the appropriate tax code necessary for a successful exchange.

Why consider a 1031 Exchange?

If you are a real estate investor, or have real estate investment properties, you should consider an exchange when you expect to acquire a replacement "like kind" property subsequent to the sale of your existing investment property. A simple sale of the property would necessitate the payment of a capital gain tax to our friends at the IRS, which can range from 20% to 40% depending on the federal and state tax rates. By selling your property using a 1031 exchange, you are leveraging your purchaing power by keeping all of your funds intact.

To qualify as a 1031 exchange, you must adhere to these two rules:

1) The total purchase price of the replacement "like kind" property must be equal to, or greater than the total net sales price of the relinquished, real estate, property.

2) All the equity received from the sale, of the relinquished real estate property, must be used to acquire the replacement, "like kind" property.

Should either of these rules (above) be violated, then then a qualified tax attorney will have to help you determine the tax liability accrued to the person executing the Exchange. In any case which the replacement property purchase price is less, there will be a tax responsibility incurred. To the extent that not all equity is moved from the relinquished to the replacement property, there will be tax. This is not to say that the (1031) exchange will not qualify for these reasons. Keep in mind, partial exchanges do in fact, qualify for a partial tax-deferral treatment. This simply means that the amount, of the difference (if any), will be taxed as "non-like-kind" real estate property.

THE 1031 Exchange Rule

A property transaction can only qualify for a deferred tax exchange if it follows the 1031 exchange rule laid down in the US tax code and the treasury regulations.

The foundation of 1031 exchange rule by the IRS is that the properties involved in the transaction must be "Like Kind" and Both properties must be held for a productive purpose in business or trade, as an investment.

The 1031 exchange rule also lays down a guideline for the proceeds of the sale. The proceeds from the sale must go through the hands of a Qualified Intermediary and not through your hands or the hands of one of your agents or else all the proceeds will become taxable. The entire cash or monetary proceeds from the original sale has to be reinvested towards acquiring the new real estate property. Any cash proceeds retained from the sale are taxable.

The second fundamental rule is that the 1031 exchange requires that the replacement property must be subject to an equal or greater level of debt than the property sold or as a result the buyer will be forced to pay the tax on the amount of decrease. If not he/she will have to put in additional cash to offset the low debt amount on the newly acquired property.

1031 Exchange Rules and Timelines:

There are 2 timelines that anybody going for a 1031 property exchange:

The Identification Period: This is the crucial period during which the party selling a property must identify other replacement properties that he proposes or wishes to buy. It is not uncommon to select more than one property. This period is scheduled as exactly 45 days from the day of selling the relinquished property. This 45 days timeline must be followed under any and all circumstances and is not extendable in any way, even if the 45th day falls on a Saturday, Sunday or legal US holiday.

The Exchange Period: This is the period within which a person who has sold the relinquished property must receive the replacement property. It is referred to as the Exchange Period under 1031 exchange (IRS) rule. This period ends at exactly 180 days after the date on which the person transfers the property relinquished or the due date for the person’s tax return for that taxable year in which the transfer of the relinquished property has occurred, whichever situation is earlier. Now according to the 1031 exchange (IRS) rule, the 180 day timeline has to be adhered to under all circumstances and is not extendable in any situation, even if the 180th day falls on a Saturday, Sunday or legal (US) holiday.



By: Christopher Benedict

About the Author:

Heloise

Submitted by: Steph-B


I have a long-term lease on a large commercial building. I’d like to sell this lease and re-invest the money in the purchase of an investment property. Do I qualify for a 1031 exchange in this case?

Real estate investors looking to sell an investment property and purchase a new one can greatly benefit from the Internal Revenue Code Section 1031. Section 1031 is one of the most powerful tax deferral tools currently available for taxpayers.

In short,this section allows for a tax-deferred exchange. This means that taxpayers do not have to pay income taxes when they sell an investment property and reinvest the proceeds from that property into a like-kind or similar asset.

A 1031 Exchange comes with numerous advantages for taxpayers and paves a road of encouragement for real estate investors so that they might continue to invest. First and foremost, Section 1031 gives the taxpayer the ability to sell business, investment and income property and not pay federal income taxes on it if they replace the sell with a like-kind property.

According to the IRS,like-kind properties must be the same in character or nature. They can, however, be different in quality or grade. Real estate investment properties that qualify under this IRS code include rental houses, retail and commercial properties, apartment buildings, office and industrial buildings, ranches and undeveloped land.

Properties that do not qualify under a 1031 Exchange are personal residences, interests in partnerships, business inventory,and property owned by dealers.

While Section 1031 obviously presents a big perk for real estate investors,there is a disadvantage. Because the exchange reduces the basis for depreciation on the replacement property, the replacement property will then include a deferred gain that will be taxed in the future when the taxpayer sells his or her investment.

There are four types of exchanges made possible through Section 1031. First,is a simultaneous exchange. This type of exchange occurs when the taxpayer closes both properties on the same day. This is usually a back-to-back transaction with no lapse of time between the closings.

Second is a delayed exchange, also known as a “Starker Exchange.” This type of transaction refers to the closing of the replacement property after the closing of the relinquished property. A delayed exchange does not take place on the same day. The delayed exchange is mandated by strict time frames pursuant to Section 1031. Specific timelines are in place to allow the taxpayer a certain amount of time to search for a replacement property and sign a contract to purchase it.

Next is the reverse exchange also known as the title-holding exchange. This is an exchange that occurs when the replacement property has been closed on prior to the selling of the relinquished property. When entering into this type of an exchange, the intermediary will retain the replacement property’s title until the taxpayer closes the relinquished property.

Lastly, is the improvement exchange which also serves a title-holding exchange. This type of exchange refers to a situation that involves the taxpayer purchasing property and arranging improvements for it before it is actually received as the replacement property.

Since Section 1031 does not allow the taxpayer to improve the property, a mediator is employed to retain and close on the title of the replacement property until it is ready to enter as an exchange. Once the improvements are complete the liaison then passes on the title to the taxpayer.

As you can see, there are several situations applicable to Section 1031 that benefit real estate investors. To learn more about IRS Code Section 1031 and how to profit from it, contact your financial advisor or accountant.



By: Omar Johnson

About the Author:

Guanyun

The term 1031 exchange comes from the section number of the U.S. Internal Revenue Code and identifies special rules for like-kind exchanges in real estate. The code states you can defer the tax when you exchange a property used exclusively for business or as an investment property, for another property that is of the same type. Remember, the tax postpones and at the sale of the replacement property, adds to any taxable gain on that property. The government recognizes that when new property replaces a property sold and the seller reinvests the money, they never really take an economic gain.

There are many rules to follow to maintain the tax-deferred status in a 1031 exchange. The seller has to invest all monies into the next property or taxation occurs on the money received. The seller has to have equal or greater debt on the new property. If the new property has less debt, then the seller needs to produce extra cash from an outside sources and cover the difference in debt. The debt reduction is constructive receipt as though it is cash and there is tax on the difference.

The identification period occurs within 45 days after the close of the original property and requires the identification of a replacement property. The replacement property needs to close within the acquisition period, which is 180 days after escrow closed on the relinquishing property.

If the seller does not put all the money into the next property, that money receives taxation as boot and if the sale followed all other rules, the property still qualifies for partial tax deferral.

A reverse exchange also exists. This occurs when a taxpayer finds the perfect property before he sells the original property.

Properties do not have to cost the same amount or be in the same neighborhood to qualify as a like-kind exchange. Like-kind properties have the same nature or usage. Rental properties need replacement with rental properties.

There are many pitfalls for the average person to stumble into on a 1031 exchange, which is why a qualified intermediary is important for a 1031 transaction. The intermediary holds the funds in trust until the replacement property closing.

Tenants in common, also known as co-tenancy, is an increasingly popular method to purchase properties. This form of ownership assigns fractional ownership by the amount of money invested. The ownership of the property goes to heirs at the point of death, unlike joint owners with the rights of survivorship. The collective power of the group’s dollar makes the 1031 exchange easier and allows ownership in commercial and institutional property otherwise outside the financial abilities of the individual. Property managers normally handle the daily problems. If one tenant in common wants to sell, the other tenants in common have the option to vote to sell, not sell or buy the individuals shares. The same rules apply for tenants in common as apply to the individual.

A 1031 exchange is a particularly beneficial way for property owners to defer taxation and make the entire profit, not just the after tax profit, keep working for their benefit



By: Todd Dunkin

About the Author:

Josy

Submitted by: Josephine G


with the 1031 exchange I would like to buy a house for me to live in. Can this qualified for a 1031 exchange?

Submitted by: Johnny C


I 1031 Exchanged into my properties. And I want to build townhouses on them and sell them. Do I have to realize the defrred tax from depreciation?
I want to tear down 2 triplexes on my lot and build some townhouses on top and then sell them. Do I have to realize the deferred tax from depreciation?

1031 Exchanges are excellent tools to reduce income taxes. Known both as “tax free exchanges” and “1031 exchanges” (based upon the enabling section of the federal income tax code) this tool allows investors to sell real estate without paying income taxes (at the time of sale). Real estate owners or investors expecting to acquire property subsequent to the sale of existing property can indefinitely defer income taxes by utilizing a 1031 exchange. 1031 exchanges have been available for over 20 year. Their popularity seems to have increased sharply over the last 7-10 years as their benefits have become known. In a typical property sale, an owner has to pay taxes on any gain. In some cases, a 1031 exchange does not make sense or is not practical. If an investor is trying to reduce his real estate asset allocation, or if a limited partnership has 20 investors with diverse interests, a 1031 exchange would not make sense. In a properly executed Section 1031 exchange, the realized tax is deferred. These transactions are sanctioned under Section 1031 of the Internal Revenue Code and are often referred to as “1031 exchanges,” “like-kind exchanges” or “tax-deferred exchanges.” What is a 1031 Exchange?A 1031 exchange provides the investor the opportunity to defer 100 percent of realized capital gains. This equates to an interest-free, no-term loan on taxes due until the property is cashed-out. Most often, the capital gain taxes are deferred indefinitely because investors continue to exchange from one property to the next, and increasing the value of their real estate investments with each exchange. By not utilizing a 1031 exchange, property owners or investors would necessitate the payment of capital gain taxes in amounts, which can exceed 20 percent to 30 percent, depending on the appropriate combined federal and state tax rates. In other words, when purchasing replacement property without the benefit of a 1031 exchange in business real estate, your buying power is dramatically reduced and represents only 70 percent to 80 percent of what it did previously. What Qualifies for a 1031 Exchange?Properties that qualify for a 1031 exchange include any real estate used for business, trade or investment. Examples of 1031 exchange properties include apartments, office buildings, multiplexes, single-family or condo rentals, raw land, farms, ranches, and commercial and industrial properties. Also, you are not limited to exchanging for property similar or exactly like your existing property. Examples of qualified 1031 like-kind properties and like-kind exchanges:



apartment building for farm/ranch

office building for hotel

raw land for retail space

unimproved property for commercial property

airplane for airplane What are the 1031 exchange rules?



The real property you sell and the real property you buy must both be held for productive use in a trade or business or for investment purposes and must be like-kind.

The proceeds from the sale must go through the hands of a qualified intermediary and not through your hands or the hands of one of your agents or else all the proceeds will become taxable.

All the cash proceeds from the original sale must be reinvested in the replacement property; any cash proceeds you retain will be taxable.

The replacement property must be subject to an equal level or greater level of debt than the relinquished property or the buyer will either have to pay taxes on the amount of the decrease or have to put in additional cash funds to offset the lower level of debt in the replacement property. 1031 Timeline Identification Period: Within 45 days of selling the relinquished property you must identify suitable replacement properties. This 45 day rule is very strict and is not extended should the 45th day fall on a Saturday, Sunday, or legal holiday. Exchange Period: The replacement property must be received by the taxpayer within the “exchange period,” which ends within the earlier of … 180 days after the date on which the taxpayer transfers the property relinquished, or … the due date for the taxpayer tax return for the taxable year in which the transfer of the relinquished property occurs. This 180-day rule is very strict and is not extended if the 180th day should happen to fall on a Saturday, Sunday or legal holiday.



By: Patrick O’Connor

About the Author:

Hedwiga

Section 1031 of the Internal Revenue Code contains arguably one of the most powerful provisions of the tax code for real estate investors… the 1031 tax exchange. Many highly successful real estate investors have used this tax code provision in combination with aggressive pyramiding and upgrading strategies to amass huge investment property portfolios. Here’s how it works:

OVERVIEW

Section 1031 in allows you to exchange “like-kind” investment properties without triggering the payment of capital gains tax. As your property assets appreciate in value you have the ability to upgrade into larger properties with greater cash flow. Section 1031 also gives you the flexibility to exchange your rental properties that have appreciated in value in hot markets, and re-invest into lesser-known areas that are expected to develop and become the next hot market in years to come. You can continuously defer these capital gains taxes as you continue to pyramid your property investment portfolio into larger and larger properties.

1031 EXCHANGE BENEFITS

There are a lot of benefits to considering the use of a 1031 exchange:

TAX DEFERRED INVESTING

The ability to re-invest your entire property equity without tax erosion can significantly enhance the amount of capital that stays invested and can make it easier to upgrade into higher value properties with greater cash flow.

INCREASE CASH FLOW

This decision to upgrade into higher quality properties with greater cash flow can occur faster now that taxes are a lower priority transaction decision. In some markets the real estate values can get ahead of the available cash flow available from the property. In these situations it may make sense to lock in your gain and look to re-invest in another property where you can achieve higher cash flow returns.

TIMING THE MARKET

The ability to speculate on the next hot market area or region is a much easier decision under a 1031 exchange. Why not lock in your profits on property that has already risen dramatically in value and re-invest it in the next hot market? As long as your capital gains are deferred making these transaction decisions is easier.

COMPOUND RETURNS

If you are stepping up your portfolio through a series of exchanges over time your full capital gain can be re-invested without tax consequence, resulting in accelerated equity accumulation.

FLEXIBILITY

The ability to switch into “like-kind” properties as defined in the tax code gives you a range of investment options and flexibility. If you don’t want a lot of the headaches associated with managing property you can also consider Tenant in Common exchanges, which do qualify under Section 1031 of the tax code.

CONCLUSION

1031 tax exchanges gives real estate investors a lot more options and flexibility to make better investment decisions on their real estate holdings without the issue of tax over-riding sound judgment. If you own a rental property or are considering it you owe it to yourself to see if a 1031 exchange is right for your circumstances.



By: S.a. Smith

About the Author:

Sibley