Can You Exchange One Property into Multiple Properties With a 1031 Exchange?

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.

Which Florida Cities Are Hot Right Now?

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?

1.   Sarasota

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.

2.   Naples

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.

Something Exciting is Happening in Chicago’s Real Estate Market

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.

What Are the 2 Timelines in a 1031 Exchange?

There is a very specific timeline that the IRS lays out for your exchange calendar that must be followed to the letter. From the day that you close the sale of your investment property, it is important to know that there are two periods for you to respect: the identification period and the exchange period.

1.   45-Day Identification Period

The 45-day identification period is the time in which an exchanger must either identify potential replacement properties or take title to their new property and finish the process. However, at the minimum, one must have a list that shows the properties that are being considered for purchase. On day 46, the list is finalized and cannot be changed. Whatever is on that list is there for the remainder of the exchange period. Make every effort not only to get into contract during the 45-day period but also to close and purchase a replacement property or properties.

2.   180-Day Exchange Period

Concurrently, with the 45-day period is the total exchange period of 180 days. From the day that you close the sale of your property, you have 180 days to complete the process. The purchase has to be one or more of the properties that are on your 45-day list. If you start your exchange in such a way that you’re going to run up against your tax return deadline prior to the 180 days, file an extension and you’ll still get the full 180 days for your exchange period.

While these strict timelines might seem intimidating, there is no need to worry. There is no penalty for starting and not finishing a 1031 exchange. If you start a 1031 exchange but do not complete it because of a 45-day issue, or any other reason, simply do not report the exchange on the next tax return. Let the time periods motivate, rather than intimidate you.

Luxury Housing Market Stays Strong as Trump Tariffs Hit Home Builders

Aluminum, steel, and lumber are all key ingredients to constructing a house. And these ingredients are seeing a soaring price increase. The price of housing materials shot through the roof this summer after tariffs imposed by the White House took effect. Experts are preparing for the long road ahead as the tariffs are likely to worsen.

While luxury housing is not above the fray, construction material is a smaller percentage of the overall cost of a luxury property. Luxury home buyers are also willing to shell out a little more cash to acquire the home they want. Demand for luxury homes has remained strong amid the chaos of rising prices.

2 Ways to Defer Capital Gains Tax in Real Estate Investing

While no one enjoys taxes, we should never avoid payment of any taxes rightfully owed. I enjoy driving on paved roads, going to national parks, and being able to enjoy all the things that my taxes help fund. Nonetheless, there is absolutely no reason to pay taxes you don’t legally owe. It is your right to follow the rules to eliminate unnecessary taxes. Supreme Court Justice Learned Hand once said, “There is nothing sinister in arranging one’s affairs so as to keep taxes as low as possible. Everybody does that, rich and poor and they all do right. Nobody owes a public duty to pay more than the law demands. Taxes are enforced exactions and not voluntary contributions.”

So, what are some ways that you can defer payment of capital gains taxes?

1.   A 1031 Exchange

One way to defer capital gains tax while investing in real estate is to carry out a 1031 exchange. A 1031 gives you the ability to exchange one investment home for another without the burden of capital gains tax. While there are strict requirements all can be easily met.

2.   Qualified Opportunity Zone

Opportunity Zones are new and still very much in a growing process. That being said, if you have always wanted to invest in Guam or Puerto Rico, there has never been a better way. Investments are made through Qualified Opportunity Funds and subject to numerous tax benefits. The island of Puerto Rico is considered a Qualified Opportunity Zone and is essentially a tax-free place to invest. For a map of qualifying areas look here.

While it is easy to get excited over the prospect of deferring tax, always make sure to consult with your local tax expert before making any big decisions.

Keeping The Right Name On The Paper In A 1031 Exchange

A 1031 exchange has very specific title and taxpayer requirements. Whoever the taxpayer was on the old property has to be the taxpayer for the new property. In general terms, it means that if you own a piece of property and sell it via a 1031 exchange, then you have to be the buyer of the new property.

Furthermore, any tax-paying entity that owns real estate can do a 1031 exchange, whether it is a corporation, a partnership, an LLC, a trust, or an individual. Individual members of these tax-paying entities, however, cannot solely carry out a 1031 exchange on a property owned by said organizations. The organization is the taxpayer, not the individual. The deed to a property might be in the name of a single member of an LLC. But, if it has chosen to be taxed as a sole proprietor, then all activity for the property owned by that LLC is reported on the individual (or joint) tax return of the single member. In that event, guess what? — The individual is really the taxpayer for 1031 purposes even though the deed is held by the LLC.

There is an easy rule to help you avoid trouble in all of this: Look at the tax returns and you won’t go wrong!

Are U.S. Home Prices Cooling Down?

Home prices are still growing, but it looks as though the pace is starting to slow. The price growth rate for July dropped to its lowest point in over two years. A flow of new inventory has accompanied the moderating growth of July. This will be welcome news for first-time home buyers who have been struggling with low inventory and little negotiating power in an unforgiving market. The hope is that the market is heading towards a more even position after years of shrinking inventory and out-of-control price growth.

Which U.S. Territories Qualify for a 1031 Exchange?

From the U.S. Virgin Islands to American Samoa, the United States administers quite a few territories. And for real estate investors it is important to keep in mind that while all of these territories are most certainly part of the U.S., they are not all treated in the same. So which islands contain property that is eligible for a U.S. to U.S. 1031 exchange?

There are three:

  1. Guam
  2. U.S. Virgin Islands
  3. Northern Mariana Islands

In 2008, the Treasury solidified these three islands as identical in treatment. Areas that are not on the list of coordinated territories do not contain property eligible for a 1031 exchange. However, with islands such as American Samoa and Puerto Rico now considered a Qualified Opportunity Zone, there is more than one way to defer capital gains taxes.

To learn more about Qualified Opportunity Zones continue on to here.

Where is the Fastest Growing Luxury Housing Market in the US?

Luxury home sales keep breaking records in 2018. According to Market Insider, a strong economy has created sizable demand for luxury housing. The entry-level price point for purchasing a home in half of the upper tier markets studied has surpassed more than a million dollars.

Interestingly enough, Sarasota tops the list as one of the fastest growing luxury housing markets. Despite sales prices rising more than 21 percent since last May, half of all luxury homes in the city sold within 157 days.