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Get the Facts Straight On Timing Rules for 1031 Exchanges

For investors who want to defer capital gains tax on the sale of business or investment property, a 1031 exchange can be a very good choice. However, before entering into this type of transaction, you must fully understand the IRS time restrictions that apply. 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 one of […]

How will the election outcome impact real estate investing?

With the presidential election less than two weeks away, it is not surprising that many investors are looking to potential outcomes and wondering how the world of real estate investments might be impacted. Investors on both sides of the aisle are casting a wary eye toward November 9th. Whether it is the expectation that a Clinton presidency will carry on the Obama legacy of targeting 1031 exchanges for additional taxation or the perception that the commercial real estate market will become more volatile with a Trump administration, the one thing everyone can agree on is that change – in some form – is coming. But what are some of the […]

The Nuts and Bolts of Triple Net Lease Investments

In today’s uncertain economic times, traditional investments provide neither the stability or meaningful returns that investors seek. Perhaps that is why interest in net-leased, single-tenant real estate is skyrocketing. But for the casual investor, these properties – commonly called NNN or STNL in the industry – remain somewhat of a mystery. Defining NNN Properties Typically, the types of real estate considered triple net lease investments are freestanding buildings that are leased out to national tenants on a long-term basis ranging between 10-25 years. These national tenants are usually well-recognized names like Walgreens, FedEx and McDonalds. Why NNN Properties Are Appealing There are several reasons that seasoned investors gravitate to NNN […]

Key Vocabulary to Know for 1031 Exchanges

The world of 1031 exchanges is riddled with unique terminology. For the uninitiated, it can be a daunting proposition. To help you understand the phrases you will undoubtedly hear if you choose to complete a tax-deferred 1031 exchange, here’s a list of the key terms you will come across. Boot: This is the fair market value of any non-qualified property you receive during the exchange. It can be cash, loans, property, reduction in debt or even supplies. Basically, anything of value that you receive during the exchange could be considered boot. Constructive Receipt: Any indirect control you have over the proceeds of the exchange. If you benefit in any way […]

Planning to relocate? Take your investment real estate with you.

One of the biggest conundrums facing investors is what to do with investment real estate when relocation is in their future. Typically, this phenomenon hits aging investors close to retirement the hardest. They’ve worked hard to build up a solid portfolio of real estate close to home. Yet with retirement around the corner, they have a desire to seek out a more hospitable location for their golden years. The question then becomes “what to do with their investment property?” The most obvious option is sell it, but that would create a potentially big capital gains tax hit. So instead, maybe hanging on to it is the better choice. But that […]

Are there refinancing restrictions on replacement property after a 1031 exchange?

I recently discussed the issues surrounding a refinance before selling relinquished property in a 1031 exchange. Another question I often field from my clients is when and how they can refinance their replacement property without triggering IRS attention (and potential tax liabilities). The good news is, that with a bit of pre-planning, you can complete a tax-free 1031 exchange and then refinance immediately afterwards. If done correctly, you can receive those refinancing proceeds tax-free, too. The key to avoiding IRS classification of the proceeds as boot lies in the timing of the refi. You should begin the refinancing process only after you close escrow on the replacement property. You should […]

Tired of actively managing your rental property? A 1031 exchange might be the answer.

Investors go into rental property ownership for all the right reasons. Appreciation of the asset and a steady, monthly income flow are two big ones. And it works beautifully for most. At least for awhile. But eventually the day comes when an investor, likely facing his or her golden years, still desires the cash flow and appreciation, but no longer wants the day-to-day responsibility of rental property ownership. After all, those 3:00 a.m. phone calls get tiresome, even for the heartiest of landlords. The great news is that investors can continue to enjoy the benefits of rental property ownership while eliminating the daily management responsibilities. And, if they structure the […]

Exchanging Real Estate That Includes Personal Property

One of the most basic tenets of every 1031 exchange is that the relinquished property and replacement property must be “like kind.” Unfortunately, when real estate is involved in the exchange, there is a fairly common issue that investors unwittingly run into. It comes up when personal property is included in the deal. This most commonly occurs when an asset like an apartment building (that includes household appliances such as refrigerators, washers or dryers) is exchanged for other real estate that may or may not include like-kind items of personal property. While the real estate itself (both the relinquished and replacement properties) is considered “like kind,” if one or the […]

Can I refinance my relinquished property before conducting a 1031 exchange?

Often times, I encounter investors who want to take advantage of the tax deferral offered by a 1031 exchange, but also want (or need) to receive money from the sale of the relinquished property. Ordinarily, any money received from the sale would be considered taxable boot. Is there a workaround? Yes and no. An investor could refinance the relinquished property immediately before the sale and receive the loan proceeds on a tax-free basis. However, then the investor would have to obtain replacement property that is subject to at least the same amount of debt as what the investor had on the relinquished property at its disposition. But wait…what about the […]

Another Way To Identify Replacement Property In Your 1031 Exchange

Anyone who has tried to complete a successful 1031 exchange knows that there are many rules to follow. Many, many rules. Mess up even a single one and the IRS is likely to deny your exchange and send you a hefty tax bill. One of the areas where investors often get caught out is in naming replacement property. You have 45 days from the date you close the sale on your relinquished property to identify replacement property. Sounds easy, but often times this is where the exchange is most vulnerable. Many investors discover (too late) that they can’t find anything suitable they wish to purchase – at least not with […]