Check out Dave’s recent article on the cost of 1031 Exchanges on the Bigger Pockets Blog here.
In simple terms, a reverse exchange is a 1031 exchange where the replacement property is purchased before the original investment property is sold. But they aren’t quite as simple as a 1031 exchange. It should be said before anything else, find a qualified intermediary (QI) before beginning the process.
1. Financing can be a hassle if you are in need of funds for the purchase until you sell. In a reverse, the QI takes title to the new property in the EAT (Exchange Accommodating Title holder). So the loan has to be made to the EAT but guaranteed by you.
2. The Reverse is relatively expensive because a holding company must be created to hold the replacement property until the exchange is complete.
Because of its complexity, taking some time with your QI to get fully educated on the nuances of the reverse will be well worth your while. It is always wise to check with your tax expert before making any moves towards a 1031.
If you are thinking of carrying out a 1031 exchange, you might be wondering, “What’s in it for me?” A 1031 has the power to transform your real estate investing strategy. More specifically, a 1031 offers you a chance to defer capital gains taxes and get your proceeds working for you. In order to qualify for a 1031, your intent must to hold the property for investment purposes only. What you will find is that as you hold your property for investing, it will also hopefully be accruing appreciation. With more equity to toy around with you are on your way to leveraging your first investment property into something better.
Once you are ready to exchange your first property, it is time to get imaginative. A 1031 gives you immense freedom when finding a replacement property. While primary residences, personal property, and inventory (fix and flips) are not allowed with a 1031, all other types of investment real estate are on the table. You can even leverage your first property into multiple replacement properties. A 1031 offers you a real chance to snowball wealth and build your fortune.
Register here for this October 18th webinar from 5:30 p.m. to 6:30 p.m. ET.
Not sure what to make of all the buzz about 1031 Exchanges? Let me introduce you to this powerful section of the IRS tax code and walk you through its legality and benefits.
Confused by what you have heard about all the requirements? Intimidated by the deadlines? I’ll help eliminate the fear factor with clear and concise information.
Think this option doesn’t apply to you? I’ll provide 1031 exchange options for when the replacement property is identified first or requires renovation.
Whether you have 50 properties or are new to real estate investing, I encourage you to join me for one hour and learn how 1031 Exchanges can accelerate your portfolio growth.
Register here for this October 18th webinar from 5:30 p.m. to 6:30 p.m. ET.
A 1031 exchange is a useful way for investors to defer capital gains taxes while reinvesting their proceeds. In order to carry out the exchange in a proper manner you will need to make sure that your replacement property is of “like kind.” Seeing that a 1031 exchange is also called a “Like-Kind Exchange,” it is reasonable to assume that it is very important to ensure that the new property is of like kind. But what does like kind mean in regard to a 1031?
Like kind essentially means that the replacement property must be used for investment purposes only. Primary residences do not qualify. A replacement property can be any type of real estate as long as it is being used for investment purposes. You can exchange a hotel for a restaurant. A warehouse for a farm. Even oil and gas interests for a single-family home.
I have said it before, and I will say it again; a 1031 is all about the intent. A 1031 exchange is designed to help investors exchange investment real estate while deferring capital gains tax. To qualify as investment real estate a property must be held for productive use. Productive use is a rather broad phrase that essentially means “The land must be doing something.” It could be used for renting, appreciation, agriculture, etc. It just has to be clear that the intent of the land is for productive use.
A fix and flip is a property that is bought to be sold. There is no intent to hold the property for productive use. As such it will not qualify for a 1031 until it can be proven that the real estate in question is for more than just selling. If you really want to carry out a 1031, your local tax guru might have a few ideas on how you can demonstrate your intent to hold your property for investment.
A 1031 exchange is all about intent. In order for real estate to qualify for a 1031 exchange, the property must clearly be for investment purposes. A multifamily home that is being rented out is a clear example of a piece of real estate that is being used for investment purposes. A vacation home that is rented out for people to stay in is another example of an investment property.
But one of the reasons to own a vacation rental is to use it yourself. And family members will certainly be asking you to let them stay for free. Free stays from family members and personal trips to the lake house count as “personal use.” So how do you know when you’ve crossed a line and turned your investment property into a second home. Luckily, the IRS has a clarifying “Safe Harbor” rules. A vacation home qualifies for a 1031 if;
(a) The dwelling unit is owned by the taxpayer for at least 24 months immediately before the exchange (the “qualifying use period”)
(b) Within the qualifying use period, in each of the two 12-month periods immediately preceding the exchange,
(c) The taxpayer rents the dwelling unit to another person or persons at a fair rental for 14 days or more, and
(d) The period of the taxpayer’s personal use of the dwelling unit does not exceed the greater of 14 days or 10 percent of the number of days during the 12-month period that the dwelling unit is rented at a fair rental. For this purpose, the first 12-month period immediately preceding the exchange ends on the day before the exchange takes place (and begins 12 months prior to that day) and the second 12-month period ends on the day before the first 12-month period begins (and begins 12 months prior to that day).
It is always a good idea to check with your local tax expert to ensure that your property meets all the requirements listed above
One of the most powerful aspects of a 1031 is its ability to truly broaden your investing horizons. Rather than simply exchanging one property for another, investors have the potential to diversify and place their tax deferred proceeds into multiple investment properties. Turning one piece of real estate into two or three is not a bad way to start building an investing empire.
It is also good to remember that “like kind” in a 1031 does not mean that the properties you are exchanging have to be exactly the same. You can exchange a residential apartment complex for an industrial warehouse. You are limited only by your imagination and desire to diversify. Though, it is also wise to see what your local tax expert advises.
It has been a good year for Florida. With northern buyers drawn to Florida by the 2018 tax plan, the state is booming at the moment. But which cities in the Sunshine State are especially growing right now?
Home to the fastest growing luxury housing market in the United States. Prices in Sarasota’s luxury housing market grew by 21% in June when compared to one year ago. Half of all luxury houses in the city sold within 157 days.
Home sales in the city of Naples rose 11 percent year over year in January. A month in which national sales dropped over four percent. Fun fact: the Naples zip code of 34102 is ranked as one of the fifteenth richest zip codes in the United States.
3. Fort Lauderdale
According to Forbes, Fort Lauderdale has become a city of choice for savvy investors of commercial and residential real estate. The city is currently in the midst of a building boom. Some 7,000 residential units were under construction or approved in 2017.
Chicago’s luxury housing market seems to be doing quite well for itself these days. Riding off the longest bull market in U.S. history, a multi-million dollar property is being sold once every five days in the Chicago metro area.
Not all tiers of Chicago’s housing markets are experiencing the same boom that the top tier of the market is. But this has not had an effect on the luxury market. In the month of August alone over 51 houses and condos in the windy city sold for at least $4 Million. More than were sold the previous two years. 6 sales for homes over $10 million have taken place this year alone.