Articles

Thu
01
Apr

Six things you need to know about §1031 - Part 2 The 45-Day Identification Rule

Section 1031 allows you to roll the gain -- and pay no capital gains tax -- from the sale of your Old Property into the purchase of your New Property. To do this, you have to jump through some hoops.

Our second Ñ1031 requirement is that you must formally identify the property that you might want to purchase. Simply stated, from the day you close the sale of your Old Property you have 45 days to file a list of properties you want to buy with your QI (the person or company you designate to handle your exchange).
You can identify up to three properties on your list without limitation. For example, if you sold your Old Property for $100,000, you could list three potential replacement properties for $10 Million each (a total of $30 Million). So long as you identify three or less, there are simply no limitations.

Wed
04
Aug

Bifurcating Closings Can Add Flexibility to Your 1031 Exchange

"bi‚fur‚cate: verb, meaning to divide into two parts." "Bifurcate" in real estate terms means to divide into two closings. Bifurcating your closing can result in some serious 1031 benefits for you. In the correct situation it can really supercharge your exchange.

Let's take a hypothetical situation and let me show you how this works: Let's say that you are selling a large piece of land for $10 million. This land is composed of two parcels: one 20 acre and one 30 acre for a total of 50 acres.One of the requirements for a 1031 exchange is that within 45 days you have to identify a list of properties you might buy. If your list has three properties or less, there are no limitations. However, if your list exceeds three properties, you are subject to the "200 Percent Rule" of Section 1031, which requires that the combined total purchase price of everything on your list can not exceed twice the selling price of the Old Property.

Sun
05
Jun

What is a “Reverse” 1031 Exchange?

A 1031 exchange is a valuable tax shelter when you sell investment or business property. Instead of just selling, you take the money you had invested in your Old Property and reinvest in a New Property ("exchanging" the Old for the New) through a Qualified Intermediary (or Q.I.), following I.R.S. guidelines.

Pay attention to the term "New." To complete a 1031 exchange that will qualify under the rules, you have to acquire a property that is new to you -- meaning, you can't apply your sale proceeds to a property you already own, or even a property that you have owned any time in the past 18 months. This means you can't have an exchange if you ever own the Old and New Properties simultaneously.

Wed
05
Nov

Cost Segregation Studies and 1031 Exchanges

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
02
Mar

“Fix-and-Flips” ...Exchangeable? or Audit-Fodder?

A couple of months ago, you discovered a real diamond-in-the-rough -- a good house in serious disrepair. Upon closer inspection, you realize that all of the problems are merely cosmetic. With a little money and hard work, this ugly duckling can become a beautiful, and highly lucrative, swan.

So, you acquire the property, perform your work, and a couple of months later, you list the property for sale. Happily, you soon receive a full-price offer-- netting you a sizeable profit! Not so happily, you discover that short-term capital gains taxes will eat a huge chunk of your earnings! What to do?

Take heart - all is no lost. You may be able to do a 1031 Exchange. However, a "fix-and-flip" must be structured in exactly the right manner to potentially qualify for a 1031 Exchange. And, even then, performing a 1031 Exchange on a "fix-and-flip" is a risky proposition because of the very nature of the "flip," or quick resale.

Thu
14
Apr

Garrett Sutton Interview with Gary Gorman

Introduction: The Entrepreneur Magazine Legal Show with Garrett Sutton, Live Tuesdays from 10-11am Pacific time: 888-327-0061; The IRS allows you to sell real estate without paying taxes. Using a special section of the IRS code, you can exchange properties tax free. Introduction: Gary Gorman, author of, "Exchanging UP! How to build a real estate investing empire without paying taxes using 1031 exchanges." What does a 1031 exchange do? Rolling gain from the Old Property over to the new. What do I have to do to get tax free treatment? The 6 things: 1. Both the Old Property you're selling and the New Property you're buying have to be held for investment. Can you use your personal residence for this? Investment property; can I buy any other kind of investment property?

Tue
01
Jun

Six things you need to know about §1031 - Part 4 You cannot touch the money

Section 1031 of the Internal Revenue Code allows you to roll the gain from the sale of your Old Property to the purchase of your New Property -- and not pay any capital gains taxes! To do this, you have to jump through certain hoops.

We've talked in Part 1 about how your property has to be held for investment or business use, and that it can not be held for resale (like a developer or fix-&-flips). We talked in Part 2 about your requirement to identify and list potential replacement properties for your exchange within 45 days of the closing of your sale of the Old Property. In Part 3 we talked about the requirement that you purchase your replacement property within 180 days of the sale of your Old Property, and that you must buy at least one of the properties listed on your 45 Day List.

Thu
01
Jul

How Owner Carry Notes Impact a 1031 Exchange

Even though mortgage money is plentiful and interest rates are low, we still get a lot of questions about "owner carry" notes and how they impact a tax-deferred or like-kind exchange. Whether you call it seller financing or contract for deed or purchase money mortgage, what we are talking about is the amount of financing that 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, or 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 are uncertain how the $20,000 note would affect it.

Wed
06
Jun

Con Artist? or Good Guy in Trouble? Either way, the money’s gone

When I had my CPA practice, I used to tell people, 'you never get ripped off by someone you don't trust.' What I mean is, usually after a high profile fraud case, the victim often says something like, "I can't believe this happened," or "He seemed like such a nice guy." You never hear the victim say, "I'm not surprised. I knew he was going to rip me off..."

Likability is a good reason to do business with someone, but it's not a good reason to trust them. In a high profile case that has made national news, the secret fiscal life of Colorado Qualified Intermediary (or "QI"), Royal "Scoop" Daniel, III, is becoming more provocative as the details of his financial dealings are revealed.

Wed
05
Apr

The Wall Street Journal - REAL ESTATE FINANCE Joint Property Ownership Picks Up

 

Tenant-in-Common Deals Allow Buyers to Chip In On Commercial Properties

-By Jennifer S. Forsyth

 

Cathy Scullin was in a pickle.

Enticed by high prices, the Beverly Hills, Calif., commercial real-estate broker began selling off pieces of her small southern California real-estate portfolio about two years ago. Only then did she realize she couldn't use the profit to buy another property.

"Everything I found needed an enormous amount of work and, in my opinion, was way overpriced," says Ms. Scullin. If she didn't reinvest in real estate quickly, she would have to pay capital gains taxes on the proceeds.

Her solution: a Tenant-in-Common transaction, where she joined a group of investors who each bought a fractional share of investment property--in this case a small retail center.

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