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Yes, You Can Use a 1031 Exchange for a Vacation Home

For many individuals, the sale and replacement of a second home will incur capital gains taxes. The good news is that, if appropriate rules are followed, these homeowners can benefit from the tax-deferral benefit of a 1031 exchange. The rules governing such transactions are explained in Revenue Procedure 2008-16. Here the IRS offers clarification to a previously confusing section of 1031 code. As of March 10, 2008, vacation home exchanges will qualify if all of the following are met: Relinquished Property The owner must have held the vacation home for at least 24 months prior to the exchange. For each 12-month period preceding the exchange, the vacation home must have […]

Key Vocabulary for 1031 Exchanges

Key Vocabulary for 1031 Exchanges

If you’re new to the world of section 1031 of the IRS Tax Code, the terminology that comes along with these tax-saving exchanges can be confusing. 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. Like-Kind: A term that refers to the nature or character of the property being exchanged. In order for the exchange to qualify for tax-deferred status, both the relinquished and replacement property must meet the IRS definition of like-kind. Boot: This is the fair market value of any non-qualified property you receive during the exchange. […]

How Will Tax Reform Impact Commercial Real Estate Markets?

It’s no secret that any tax reform coming out of Washington may include repeal of popular Section 1031. This section of the tax code is what allows real estate investors to sell one property and reinvest the proceeds into “like-kind” property and avoid capital gains taxes. So if reform does axe this popular tax benefit, it makes sense that such an action could have significantly negative affects on the commercial real estate market. Read here for a detailed analysis of how commercial real estate brokers are interpreting the impact of any such tax reform.

The Basics of Long-Term Commercial Leases

The Basics of Long-Term Commercial Leases

Whether you’re a business owner looking for space to run your company or an investor seeking out a commercial real estate investment, understanding the variances on commercial long-term leases is essential. Single Net Lease – You will be responsible for the basic monthly lease payment plus other limited obligations spelled out in the lease. Double Net Lease – You will have a monthly lease obligation that is slightly smaller, but also be responsible for all property expenses less exterior maintenance. Triple Net Lease – Similar to a double net lease, but also you will pay all operating expenses including maintenance. Since you bear all expense responsibility, your monthly lease obligation […]

May I Exchange My Easement Interest Via Section 1031?

May I Exchange My Easement Interest Via Section 1031?

Although section 1031 of the IRS code has been around since 1921, there is still some misconceptions about this piece of tax code. One issue that comes up with more regularity than you might think is the concept of exchanging easement interests (conservation or agricultural). First, can they be considered as “like-kind” to real estate? Second, do they qualify for an exchange. The IRS issued several private letter rulings finding that certain types of conservation and agricultural easements are, in fact, “like-kind” to real estate. Of course, since it is the IRS, there are certain caveats to this determination. First, you must be clear about what a conservation easement is. […]

Why a DST or TIC Could Be the Right Investment for You

Why a DST or TIC Could Be the Right Investment for You

Many of my clients are individual investors, buying and selling investment real estate to grow their investment portfolios. One common question I hear from these clients is “how do I grow my investments faster?” They are concerned that the amount they have to invest on their own is simply not enough to achieve the long-term growth they desire. One option I often suggest is fractional or co-ownership in the form of a Delaware Statutory Trust (DST) or Tenancy In Common (TIC). Quite simply, this type of joint ownership allows an individual investor to acquire a larger and hopefully more profitable real estate asset than what they could have purchased with […]

Breaking Down ‘Like-Kind’ in a 1031 Exchange

Breaking Down ‘Like-Kind’ in a 1031 Exchange

A successful 1031 exchange can offer powerful tax-deferral benefits to an investor. However, whether an exchange is successful depends on whether it follows the strict rules laid out by the IRS. One of these requirements is that the relinquished property and replacement property involved in the 1031 exchange is “like-kind.” Which sounds simple, right? In many transactions, it is. For example, an investor relinquishes one multi-family rental property and replaces it with another multi-family rental property. In this scenario, there is little doubt that the replacement property is similar to the relinquished property. But are there scenarios where “like-kind” can get more confusing? Absolutely There are many ways that two […]

The Basics of Triple Net Leases

The Basics of Triple Net Leases

In today’s uncertain economic times, traditional investments don’t necessarily provide 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 […]

How to Ensure Full Tax Deferral For Your 1031 Exchange

How to Ensure Full Tax Deferral For Your 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 immediate tax liability on their investment 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 can acquire property of equal or greater value […]

Joint Ownership Investments & 1031 Exchanges

Joint Ownership Investments & 1031 Exchanges

If you’re an investor who’s successfully used the power of a 1031 exchange to reduce your capital gains tax liability and grow your portfolio, you may be wondering “what’s next?” After all, the tax savings is great and you’ve steadily increased the value of your properties along the way. Perhaps now is the time to consider a more sophisticated investment. Something with more potential ROI and less daily headaches sounds appealing, doesn’t it? But what is out there? One possible answer may be with fractional or co-ownership investments. Vehicles like Delaware Statutory Trusts or Tenancies in Common allow groups of investors to pool their resources and purchase more expensive – […]