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Tue
16
Sep

Bare Bones Basics of a 1031 exchange

Submitted by Gary Gorman on Tue, 09/16/2014 - 16:04

1031 exchanges, at least as we know them today, have been around since 1991. Most people in the real estate industry have heard of them and seem to have a good working grasp of how they work, and what the requirements are. Occasionally we get calls from someone who has not heard of a 1031 exchange, or has no clue what the rules are. So now would be a good time to do a refresher course, if you will, on the basic rules of an exchange.

Rule #1 – Both the Old Property and the New Property must be held for investment or used in a trade or business. Many people think that if you sold a purple duplex, you must buy a purple duplex. This is not the case – you can buy any other kind of investment real estate: you could buy an apartment building, an office building, a warehouse or bare land.

Tue
16
Sep

1031 In a Nutshell

Submitted by Kim Bicket on Tue, 09/16/2014 - 15:21

What is a 1031 Exchange?

People ask, “Why should I do a 1031 exchange?” I can answer this question in two words: "Financial Leveraging." By doing a 1031 exchange, the taxes you would have paid to the government are now working to earn you money.

A 1031 exchange allows a taxpayer to postpone their long-term capital gains tax when selling an investment property by exchanging both the basis and the gain into a new investment property. This gives an investor financial leverage. If you have a property used for investment or business and you plan on buying another property used for investment or business, then yes, you need to do a 1031 exchange.

Tue
16
Sep

Common 1031 Misconceptions

Submitted by Cody Walkup on Tue, 09/16/2014 - 15:06

In simple terms, a 1031 exchange moves the gain from the sale of an old investment property into the purchase of a new investment property. By moving the gain into a new property, you defer paying tax on that gain into the future.

For example, suppose Jane Doe sells her rental house for $200,000. She bought it five years ago for $150,000. Now using a 1031 exchange, she buys another investment property for $200,000. By following the IRS’s requirements, she is able to transfer all her gain into her new property instead of paying taxes on the sale.

Since the most recent real estate boom, people have become more aware of 1031 exchanges than ever before. Even with this increased awareness, there are still some prevalent misconceptions about this specific section of the tax code. As a 1031 exchange consultant, I hear these misconceptions everyday. Here are the most frequent three I hear:

Wed
10
Sep

Why do a 1031 Exchange?

Submitted by Jim Sides on Wed, 09/10/2014 - 13:24

1031 is a section of the tax code that allows you to sell your investment property (almost any property other than your personal residence), buy a new investment property and defer all of the capital gains taxes from the old property to the new one.

This does three things for you:

  1. you don't have to turn over to the government upwards of a third of everything you made on the property

  2. you now have all that extra money to spend on the new (replacement) property

  3. it may help you avoid the dreaded Alternative Minimum Tax (AMT). In short, its way of preserving your working capital as you build your real estate empire.

all the money you would have paid to the government is now available to buy a better condo...

Wed
10
Sep

Getting More by exchanging rather than selling

Submitted by Phil Ladd on Wed, 09/10/2014 - 12:18

If you own business or investment property, you may be able to save thousands of dollars by exchanging your assets instead of selling them.

A like-kind exchange under Internal Revenue Code Section 1031 allows you to defer the taxes on capital gains by exchanging rather than selling. This tax deferral is available for both real estate (dirt and everything screwed into it) and personal property (things you can pick up and move). This can save you in Federal and State taxes anywhere from 15% to 35% on each dollar of gain realized, depending on your state’s tax rates.

There are a few basic steps that will be required under code section 1031 to enjoy this great financial advantage.

Wed
14
Jan

Section 121 - Congress Limits Gain Exclusion on the Sale of Some Primary Residences

Submitted by Gary Gorman on Wed, 01/14/2009 - 01:00

When Congress passed the Housing Assistance Act of 2008 a few months ago, their goal was to help those people who were losing their homes in foreclosure. One of the side affects of the bill, however, was a change that could effect taxation on the gain from the sale of your personal residence.

IRS law excludes $250,000 of the gain from taxation if you're single, and $500,000 if you're married, when you sell a primary residence you've lived in for at least two years of the last five years. This is so even if a portion of the gain was rolled over into the property in a 1031 exchange transaction.

...This new law penalizes you for the time your property was not your primary residence...

Tue
25
Nov

Capitalize on the Current Real Estate Market with a Reverse Exchange

Submitted by Gary Gorman on Tue, 11/25/2008 - 01:00

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...

Wed
05
Nov

Cost Segregation Studies and 1031 Exchanges

Submitted by Gary Gorman on Wed, 11/05/2008 - 01:00

Coming from my background as a CPA, and making my living in the real estate industry, I’m amazed that more of my clients don’t have cost segregation studies done on their properties. If you are one of the vast majority of property owners who’ve never heard of a cost seg study (as they are called), or don’t know what one is, you should take a look at this great tax benefit.

Wed
15
Oct

Using 1031 Exchanges to Shift Gains Between Tax Years

Submitted by Gary Gorman on Wed, 10/15/2008 - 01:00

As we start to wind down towards the end of the year, now is a good time to point out that 1031 exchanges are a great vehicle to use in shifting gain between two tax years. For example, if Fred and Sue sell their purple duplex on December 1, 2008, their 45-day identification deadline for their exchange is January 14, 2009. Section 1031 of the Internal Revenue Code requires that they send a list of potential acquisition properties to their intermediary no later than, in this example, this date. Failure to do so will terminate their exchange, causing the gain from the sale of their purple duplex to be taxable.

Wed
17
Sep

How Owner Carry Notes Impact 1031 Exchanges

Submitted by Gary Gorman on Wed, 09/17/2008 - 01:00

In this current climate of lender uncertainty, we’re getting a lot of questions about “owner carry” notes and how they impact a 1031 exchange. Whether you call it seller financing, contract for deed or purchase money mortgage, what we are talking about is the amount of financing the seller of a property is willing to help the buyer with.

Let’s say that you are selling your investment property for $100,000, and the buyer of your property is able to put up $80,000 in cash (whether from a loan, his own funds or both), but the buyer needs you to carry back the difference of $20,000. You want to do a Section 1031 exchange, but you’re uncertain how the $20,000 note would affect it.

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