1031: 101 - Tax-Deferred Real Estate Exchanges for Beginners

The sheer number of investment vehicles available to you these days is absolutely staggering. Stocks, bonds, precious metals, commodities, options, derivatives, real estate, etc., etc., etc. - it can make your head spin! Now, all things being equal, none of these investments are better than any other. If you know what you're doing, you can make money in any of them.


Refinancing 1031 Property in an Exchange

To refinance or not to refinance: this is the common question many 1031 exchangers ask. By refinancing, exchangers are usually hoping to pull money (cash) out of their sale transaction to use for purposes other than investing in new 1031 property.

To answer the question, we need to understand the timing of the refinance. Based on the whether you, the taxpayer, are pulling money from the old, relinquished property or from the new, replacement property, the IRS has varying positions.

When refinancing the old property, a key 1031 exchange requirement drives the IRS’ position. The taxpayer cannot receive, touch or control the funds generated from the sale of the old property during the period until the purchase of the new property. Does refinancing the old property right before the exchange constitute “receiving money”?


Clearing Up Confusion: 1031 exchanges can provide significant savings on capital gains

Saving tax money can be a complicated process. Although confusing, understanding IRS Code Section 1031 is worth it! 1031 exchanges can provide significant savings on capital gain taxes.

An exchange connects the sale of an old property and the purchase of a new property to postpone taxes. Exchanges are great for investors who are selling investment property that has increased in value or has been depreciated for tax purposes. Unfortunately, legal and tax experts are oftentimes confused about these IRS rules. Much of the confusion comes from the relief (payoff) and replacement of mortgage debt on exchange properties.

The common misunderstanding about debt is that the investor must replace 100% of the debt held in the old property by taking on an equal amount of debt against the new property. This is incorrect. The solution lies in a thorough understanding of two tax themes addressed in The Code — taxable cash and taxable debt relief.


Capitalize on the Current Real Estate Market with a Reverse Exchange

With a typical 1031 exchange, you can sell your investment property without paying taxes when you purchase another investment property of equal or greater value. But, there's a hitch - you must sell your old property before you buy your new property within a strict 180-day time frame - in order to qualify for a 1031 exchange.

What happens if you need or want to purchase the new property before selling the old property? For example, you run into a delay on the sale of your old property or you want to take advantage of a down market to invest in foreclosed properties while you're waiting for the market to ramp back up - but you're not ready to sell your current property's? This is where the reverse 1031 exchange comes in.

...Sophisticated investors are using reverse exchanges to make purchases now, when the market is slow and prices are low...


Uncertain Times: Planning Your Real Estate Tax Alternatives

These are crazy, uncertain times. If you’re selling a property, do you know what to do? Do you sell it and pay the tax, or do you roll the dice on a 1031 exchange? Is this a once-in-a-lifetime opportunity to take your gain at a low tax rate (as low as we may see for awhile)? Or is paying the tax simply a waste of money? What if I told you there is a way to take the guesswork out of your decision?

As I write this, McCain and Obama are neck and neck in the race to see who will be the next President of the United States. The one who wins will probably be the one who is able to sway the greatest number of undecided voters to his side. Typically the undecided don’t make up their minds until the last minute, which means that this race looks like it could go down to the wire.


Help needed to overcome reverse exchange 'speed bumps'

Up until the IRS approved Reverse 1031 Exchanges in a ruling (Rev. Procedure 2000-37) issued in September, 2000, many people, especially tax professionals, were skeptical of them. Now, however, even though there is lots of talk about them, many people really don’t know exactly what a Reverse Exchange is and how it works.

Reverse Exchanges arise when you want to (or need to) buy your New Property before you’ve sold your Old Property. The problem is that the IRS will not let you be in title to both your Old Property and your New Property at the same time. This situation, then, gives rise to a Reverse Exchange.


Security of Funds One of the Biggest Issues Facing 1031 Exchanges

Security is the big issue for those investors doing 1031 exchanges. There have been a lot of stories in the news lately about intermediaries who’ve taken their clients’ exchange funds. All of the bad things that happen with exchange accounts stem from commingled accounts, rather than separate exchange accounts. Yet few intermediaries place each exchange client’s money in a separate account for them; commingling is the industry standard.

When “commingling,” all of the exchange funds are placed in a single account rather than in a series of multiple, or “separate,” accounts set up for each client. The primary reason that intermediaries commingle is to maximize their personal return on your money – they earn a large return and pay you a small portion of it. With a separate account you get all the earnings from the account.


Should You Take Advantage of the New Capital Gain Rates, or Do a 1031 Exchange?

Now that tax rates on capital gains have dropped to 15% (from 20%), a lot of our clients are wondering whether they should just pay the tax or do a tax-deferred exchange when they sell their property. If you do not want to buy another property, or if you are selling bare land, then perhaps paying the tax may be the route for you. On the other hand, if you are going to buy another property, or if you’ve depreciated your old property, it probably makes more sense to do an exchange.