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All posts by Robert Hetsler

How to Calculate Your Adjusted Cost Basis

The basis of every 1031 exchange begins with you determining your capital gain (or loss) from the sale or disposition of your property. This value is your Adjusted Cost Basis. To determine this value, you start with your original purchase cost then add in any purchase expenses, your cost for capital improvements and principal payments of special assessments (if any). Once you have that total amount, you then subtract any depreciation you’ve taken or were allowed to take and any casualty or demolition losses you’ve claimed. The resulting figure is your Adjusted Cost Basis, and this value guides the remainder of your 1031 exchange.

Is Fractional Ownership an Investment Option for You?

When it comes to investing in real estate, there are many ways to do it. Most non-professional investors are familiar and comfortable with the single owner method. The investor finds and purchases a parcel of real estate with the intention to capitalize on the property’s appreciation in value. It is a straightforward way to enter the real estate investment arena. However, fractional or co-ownership investments are also a popular option that many non-professional investors never consider. They should. Fractional and co-ownership interests in real estate let you to acquire larger, more secure, more profitable and potentially more stable real estate than you could likely acquire on your own. How? By […]

Time Constraints in a 1031 Exchange

When it comes to successfully completing a 1031 exchange, it’s all about the timing. Far too many investors are caught off-guard when it comes to meeting important deadlines. Knowing and following the critical time limits puts you in the best position to ensure a seamless exchange. 45-Day Rule for Identification. This rule requires that the investor either close on the purchase of the replacement property or identify potential replacement property within 45 days of transferring the relinquished property. The IRS insists on strict adherence to this time limit or else the 1031 exchange will fail. To comply, an investor must, within the 45 days, close the sale or comply with […]

Why Should You Consider a 1031 Exchange?

Whether you are a business owner or investor, a 1031 exchange can be a very powerful – and lucrative – investment tool. You already know that any property that is sold or transferred, and results in a gain, is subject to tax. Depending on the specifics of the property, your own tax bracket, depreciation and state taxes, you can end up with a tax liability of upwards of 40%. Wouldn’t it be great to avoid that liability and re-invest it? You can with a 1031 exchange. Fulfilling all the requirements of a 1031 exchange allows you to keep all the equity for re-investment. You can acquire a more suitable replacement […]

Investing in TICs and DTSs Requires Serious Due Diligence First

Every investor wants to be certain that they are putting their money into solid investments, especially when it comes to complex real estate transactions. Due diligence – the analysis of the circumstances surrounding an investment – and full disclosure of all material facts is an essential component of the investment process. Especially when it comes to investing in two very popular real estate options – Tenancies in Common (TIC) and Delaware Statutory Trusts (DST). Failing to consider all aspects of the offering is the first step towards entering into a very unfavorable transaction. The best way to avoid troubles down the road (and potential litigation) is to cover all your […]

How to Defer All Capital Gains Taxes in a 1031 Exchange

The whole point of a 1031 exchange is to defer tax liability on the transaction in order to free up equity to purchase more valuable property and grow investments. Unfortunately, some investors don’t fully understand the requirements for full tax deferral, and make common mistakes that lead to unintended “boot” and the resulting immediate tax liability on at least some part of their transactions. To qualify for full tax deferral, an investor must meet two basic requirements in a 1031 exchange: Reinvest the entire net equity in one or more replacement properties, and Acquire one or more replacement properties with the same or greater amount of debt. Alternatively, the investor […]

How to Identify Property in a 1031 Exchange

For many investors, finding suitable replacement property is the biggest challenge in any 1031 exchange. While occasionally the perfect property will come along – sometimes even before the relinquished property is sold – this it not the case in most exchanges. For investors who relinquish before finding a replacement property, there are several important requirements that must be followed with regard to identifying replacement property in order for the 1031 exchange to succeed in the eyes of the IRS. And, no, it is not as simple as finding something you like. These “Rules of Identification” include: Up to three replacement properties may be identified without regard to their fair market […]

Why Should You Consider a 1031 Exchange?

IRS §1031 is commonly referred to as the last available tax shelter for investment real estate. When a 1031 exchange is completed, the seller preserves all capital appreciation by avoiding the tax liability of both state and federal capital gains and recaptured depreciation. The full amount of the seller’s capital appreciation can then be applied toward the acquisition of a new investment or business property. With a 1031 exchange, a seller is often able to afford a more valuable investment property than had the investor followed the traditional sale and purchase route that incurs harsh tax liabilities. A 1031 exchange also allows investors to replace an underperforming property with something […]

What Property Does Not Qualify for a 1031 Exchange?

Although section 1031 has been around since the 1920s, in 1986 the government saw fit to revise the code to exclude certain types of property from exchange qualification. Before you embark on a 1031 exchange, be sure to understand whether your relinquished and replacement properties qualify. Property that does not qualify for a 1031 exchange: A personal residence (although if you use a portion of your home for business or investment use, that portion may qualify) Stock/inventory used in trade Stocks Bonds Notes Securities/Indebtedness Partnership Interests Goodwill in a business Property held primarily for sale (e.g. flips, spec homes, developed lots) Understanding before you begin what property will – and […]

What is an Improvement Exchange?

So you are an investor considering a 1031 exchange. You have existing property you no longer want or need, but are having a hard time finding the perfect replacement property. You’ve seen several possibilities, but each had drawbacks that killed the deal. Are there any options open to you that would still allow you to sell your relinquished property and defer all your capital gains liability Yes. When you want to acquire replacement property that meets your exact criteria, consider conducting an Improvement Exchange. This allows you to construct or renovate the ideal replacement property and still qualify under section 1031. However, an Improvement Exchange is not without its risks. […]