If you want to carry out a successful 1031 exchange, there are six requirements you will need to fulfill. All six must be met for your exchange to be recognized by the IRS. Here is a helpful little summary to get you started.
1. The Intent to Hold for Investment
Your primary residence cannot be exchanged with a 1031. But any real estate that is demonstrably being held for business, investment, or productive use in a trade can be exchanged.
2. 45-Day Identification Rule
From the day you close the sale on your old property, you have 45 days to identify a replacement property or properties. You must compile a legible list of your selected properties for the IRS. At the end of the 45-day period, the houses on your list are final and no more changes can be made.
3. 180-Day Exchange Period Rule
From the closing on the sale of your old property, you only have 180 days to complete the whole exchange. Or until your next required tax filing, whichever comes first. Make sure you time your exchange carefully.
4. Qualified Intermediary (QI) Requirements
Finding a QI is vital to the success of your 1031. You must find a QI before selling your old property. If you sell your property before you find a Qualified Intermediary, then you cannot exchange that property using a 1031.
5. Title/Taxpayer Requirements
The person who pays the taxes before the exchange must pay the taxes after the exchange. If a married couple jointly holds title to the old property, they must both hold the title jointly on the new property as well.
6. Reinvestment Requirements
If you wish to defer all taxes, then you must reinvest all your proceeds. Money that is removed from the exchange becomes taxable to the IRS while the rest remains sheltered in the exchange.
This list should help you get an idea of what it will take to carry out a 1031. With an experienced Qualified Intermediary and respect for the rules, your 1031 should go smoothly.
To learn more about how you can utilize the power of a 1031 Exchange visit The 1031 Investor.
6 Requirements for Carrying Out a 1031 Exchange
If you want to carry out a successful 1031 exchange, there are six requirements you will need to fulfill. All six must be met for your exchange to be recognized by the IRS. Here is a helpful little summary to get you started.
1. The Intent to Hold for Investment
Your primary residence cannot be exchanged with a 1031. But any real estate that is demonstrably being held for business, investment, or productive use in a trade can be exchanged.
2. 45-Day Identification Rule
From the day you close the sale on your old property, you have 45 days to identify a replacement property or properties. You must compile a legible list of your selected properties for the IRS. At the end of the 45-day period, the houses on your list are final and no more changes can be made.
3. 180-Day Exchange Period Rule
From the closing on the sale of your old property, you only have 180 days to complete the whole exchange. Or until your next required tax filing, whichever comes first. Make sure you time your exchange carefully.
4. Qualified Intermediary (QI) Requirements
Finding a QI is vital to the success of your 1031. You must find a QI before selling your old property. If you sell your property before you find a Qualified Intermediary, then you cannot exchange that property using a 1031.
5. Title/Taxpayer Requirements
The person who pays the taxes before the exchange must pay the taxes after the exchange. If a married couple jointly holds title to the old property, they must both hold the title jointly on the new property as well.
6. Reinvestment Requirements
If you wish to defer all taxes, then you must reinvest all your proceeds. Money that is removed from the exchange becomes taxable to the IRS while the rest remains sheltered in the exchange.
This list should help you get an idea of what it will take to carry out a 1031. With an experienced Qualified Intermediary and respect for the rules, your 1031 should go smoothly.
To learn more about how you can utilize the power of a 1031 Exchange visit The 1031 Investor.
3 Benefits of Homesteading Your Primary Residence
Homesteading your principal residence has many advantages. Below are three reasons why you should definitely consider checking to see if your property qualifies for the homestead tax exemption.
1. Tax Exemptions
Everyone loves a property tax cut. Homesteading a house in Florida grants you a property tax exemption that is based on the assessed value of your property. It is currently possible to have up to $25,000-$50,000 deducted from your property’s assessed taxable value.
2. Protection of Your Property
A property that has been homesteaded is protected from forced sale to satisfy debts for personal loans. This means that if you wind up owing any credit card companies an enormous amount of money, they are forbidden from coming after your home. However, homesteading your property does not protect you from foreclosures for not paying your property taxes, mortgages, homeowners association fees, and construction fees. Even with a shield, it is always a good idea to pay off your debts in a timely manner.
3. Protection for Your Family
Homesteading your property guarantees that your family will still have a home after you are gone. Homesteading ensures that if you are married and pass away, your surviving spouse and children will inherit the estate. Even if a will states otherwise the operation of law will protect your family from being displaced from their home. The signature of both spouses is required on all documents in a homesteaded property. Even if the property is titled in one spouse’s name only.
To learn more about how you can utilize the power of a 1031 Exchange visit The 1031 Investor.
What Are Florida’s Requirements for the Homestead Tax Exemption?
Homesteading your property in the state of Florida is a great way to cut down on property taxes and protect your home from creditors. But before you start filing the paper work it is important to make sure that the house you are homesteading meets all the requirements.
Only your principal residence may be homesteaded. The size of the property that may be homesteaded varies depending on where your house is located. If it is located within city limits, only half an acre may be homesteaded. However, if the house is located outside of city limits up to 160 acres may be homesteaded.
To be considered eligible when filing for the homestead tax exemption, you must have held the title to the property since the first of January. If you are applying for the first time, you must file an application with the county property appraiser’s office on or before the first of March. If your application has not been filed by March, the homestead exemption will not take effect until the following year. The procedure varies from county to county. Some counties will allow homeowners to submit the initial application throughout the year. Always make sure to talk to a local expert in your county.
To learn more about how you can utilize the power of a 1031 Exchange visit The 1031 Investor.
5 Advantages of Real Estate as an Investment
Real estate is a fantastic way to diversify your profile and build wealth. If you are weighing the pros and cons of investing in real estate here are five advantages of real estate as an investment.
1. Tax Advantages
One of the most enticing aspects of real estate investing are the many tax advantages that come with it. For example, a 1031 allows you to completely defer capital gains taxes while you reinvest your proceeds.
2. Rate of Return
When compared to other kinds of investments, real estate has a historically high ROI for owner-investors.
3. Cash Flow
If you are looking for a way to generate passive income, rental properties are a great route to take. Once all the bills and maintenance fees have been paid, rental properties offer a stable and predictable source of cash flow.
4. Protection against inflation
There is a reason investors call real estate a “Hedge against inflation”. While the price of coffee and gas shoot up and the dollar becomes worth less, your property is more than likely to continue growing in value. Real estate prices have historically increased at a faster rate than inflation has increased.
5. Equity Buildup
The beautiful part of investing in a rental property is that your tenant is the one who is actually paying off your mortgage debt. Your equity grows immensely over time as your property appreciates and your mortgage is paid off from the rent you collect.
What Happens If I Can’t Complete My 1031 Exchange?
A 1031 is a great low risk method for deferring capital gains tax. But what happens if you can’t complete your 1031 exchange? Long story short; as soon as your 1031 falls through your sale becomes a taxable event to the IRS. An exchange can collapse for several reasons; failing to identify a replacement property during the 45-day period, failing to purchase a property off your 45-day list by the end of the 180-day period, and failing to complete the exchange before your next tax return. If you bought every property on your list and still have money left over, those funds become taxable to the IRS while the rest is sheltered in the exchange.
Sometimes life just happens and you can’t complete your 1031 exchange. You can’t find the right property, or the property you want falls through, or you’re handed one of those “uh-oh” moments. Fortunately, there is no penalty for starting a 1031 exchange and not completing it, other than paying the tax that would have normally been due. The 1031 exchange can be an inexpensive way to “kick the can down the road” to see what might be available. And while there are no repercussions for not completing a 1031, completing a successful exchange will help you maximize your real estate investing.
To learn more about how you can utilize the power of a 1031 Exchange visit The 1031 Investor.
What Information do you Need to Structure a 1031?
Starting a 1031 exchange is as simple as giving your Qualified Intermediary your name, address, and the address of the property you are selling. The QI is the one who makes or breaks it with the fine details. In fact, the QI is a required part of your 1031 exchange and they must be in place prior to the closing of the sale of the old property.
If you are a real estate investor, the structure of a 1031 exchange should be almost invisible to you. An exchange uses all the same professionals that would normally be involved in the selling of a property; title companies, attorneys, real-estate agents, etc. And they conduct themselves in the exact same way; they close the sale of the property and purchase of the new property or properties. The 1031 is an added on piece that enfolds into that process making it very easy for an investor to initiate when using the right Qualified Intermediary.
The key to ensuring that your exchange goes smoothly and has all the information that is needed is an experienced Qualified Intermediary. The QI is the one who will be signing the documents, placing the proceeds into a qualified, insured, trust account, and ensuring that the sales follow the strict protocols of sec. 1031. The QI must be referenced in specific places on the settlement statements and all parties must be notified that a 1031 has transpired.
To learn more about how you can utilize the power of a 1031 Exchange visit The 1031 Investor
Equal or Up
If you’re looking to defer capital gains taxes with a 1031 exchange it is important to know the ins and outs so that you can get the most out of your real estate investing. One rule that every investor would be wise to remember is the “Equal or Up” rule. Equal or up means that if you want to completely defer all of your capital gains taxes there are two things you will need to do valuation wise
1. You must purchase at least as much as you sell. This is the contract price less the closing costs of the net sale but before the mortgage is paid off. In other words your net sales price.
2. You must use all of the proceeds (the amount left after the mortgage is paid out of the net sale) in the next purchase or purchases.
However, if you want to purchase less than what you sold or if you want to take some cash out you may. This will make your exchange a partial exchange. Meaning that the amount you take out or buy down is taxable as gain. The rest remains safely nestled and tax deferred in the exchange.
Can Oil and Gas Be Exchanged With a 1031?
A 1031 is all about exchanging real estate. But what is defined as “real property” by the IRS and various states isn’t limited to just houses and condos. A fun fact, for instance, is that oil and gas can qualify as real estate.
The production of oil and gas involves access to the property that the resources are on and the rights to extract those resources from the land. This means that while the oil and gas are on the property they are treated like real estate and can be exchanged. Mineral, Water rights, and timber function in the same way, though whether they are considered real estate varies from state to state.
The beautiful part of this is that with a 1031 like-kind exchange, oil and gas can exchanged for any other real estate. If you’re tired of collecting royalty payments in cold cold Ohio, why not exchange it for a vacation rental in sunny Florida? A 1031 exchange has the power to free you and broaden your investment portfolio.
Why is the Housing Market Heating up?
The housing market is booming in many parts of the country. According to MarketWatch, buyer traffic across the country has been on the rise. But why are buyers scrambling to buy? The impending possibility of rising mortgage rates has many buyers looking to purchase while they can. Low inventory has led to frenzied buying in many areas where affordable housing is scarce. The 2018 tax reform also helped to set up states like Florida as favorable places to relocate. In fact, 6 of the nation’s fastest growing metro areas are in the Sunshine State. With its favorable tax environment and beautiful weather, it is no mystery as to why many are choosing to flee the cold and relocate in Florida.
Miami’s Luxury Market Heating Up in 2018
The Sunshine State’s most popular city has been enjoying a great beginning to the new year. According to the Miami Association of Realtors, luxury home sales and existing condominium sales increased in February. The boost in sales is credited to Florida’s favorable tax treatment. With no state income tax and a pro-business tax structure, many northern buyers from expensive high-income tax states have begun flocking to Florida. Luxury homes are still lingering on the market longer than they were last year. But as the market picks up and more Northerners flee the frozen north, luxury homes might not be sitting empty for very long.