Nobody has a crystal ball to foresee what, if anything, will happen to 1031 exchanges should tax reform ever actually come out of Washington. But if new legislation does hit the books – and 1031 exchanges are eliminated – what options will be left on the table to avoid or eliminate capital gains taxes? This article presents a great summary of alternatives to a 1031 exchange, at least for a select segment of the investor population.
Unless you’re conducting a rare, simultaneous exchange, one person you’ll need to hire to help you with the exchange process is a qualified intermediary. This is the person or company that keeps you on track throughout the transactions, holds money and titles and fulfills an indispensable role to guide you away from violating the strict rules of the tax code. The QI should be doing three key things for you throughout the 1031 exchange process. Holds exchange funds Since the investor cannot have actual or constructive receipt of sale proceeds from the relinquished property (or even be allowed to benefit from the exchanged funds in any way during the transaction), […]
If you’re new to the world of real estate investing, perhaps you are not familiar with one niche market – tenancy in common (TIC) ownership. This is where a group of investors pool their resources to purchase investment property, and then share all the benefits and liabilities of it. It is a great way for individual investors, who lack the resources to go it alone, to move into more lucrative investment properties. But like anything, there are pros and cons to this type of investment. You should be aware of both the upside and potential downside to this type of investment before committing to it. Pros One of the advantage […]
There is no denying the appeal of newly constructed triple net lease retail and restaurant locations, especially for a 1031 investor looking for a bigger and better investment. But as prices rise for these in-demand properties, does it make sense to invest via an exchange? This article offers a great analysis of the risks and rewards to potential 1031 investors.
Whether you’re new to the world of real estate investing or a veteran of buying and selling these type of properties, there’s a niche market you’ve likely never considered. The world of self-storage facility ownership. While the idea of owning a self-storage facility might seem daunting, it is actually a very beneficial type of real estate investment to be involved in. But wait, you may be saying, those type of properties are too expensive for my investment budget. The answer to this dilemma may be found in the idea of a self-storage TIC (tenancy in common). With a self-storage TIC, you join other investors and pool your resources to purchase […]
When it comes to leveraging the tax-deferral power of section 1031 of the U.S. Tax Code, it is not a one-size-fits-all approach. To the contrary, the IRS has made allowances to cover a variety of situations where a taxpayer may wish to trade investment or business property and defer capital gains taxes. The answer to the question of which one is right for you, of course depends on your individual circumstances. It is best to discuss your specific facts with your financial advisor or experienced qualified intermediary before you begin. Simultaneous Exchange This occurs when the closings of the Relinquished Property and the Replacement Property occur on the same day. […]
When it comes to meeting the requirements of section 1031 of the U.S. Tax Code, one key element that the IRS will scrutinize is the taxpayer’s intent. This is especially true when it comes to determining whether property has been held for investment purposes. With the popularity of house flipping still high, many real estate investors naturally inquire about whether their flipped properties might qualify for an exchange. However, the IRS is fairly clear that flipped properties do not qualify as investment properties, thus falling outside the safe harbor of section 1031. However, this does not necessarily mean that a property you originally bought to fix up can never qualify […]
Although the current Republican plan for tax reform, the Better Way blueprint, does not directly address repeal of section 1031, it does provide for immediate expensing of business investments. This is leaving many to wonder what role, if any, section 1031 would have after such a rule would go into effect. While section 1031 would still be valuable for land transactions (where immediate expensing would not be applicable), how would such changes to the tax law affect Real Estate Investment Trusts (REITs)? A great summary of why section 1031 would still be valuable for this type of investment can be found here.
Although not much seems to be getting done in Washington at the moment, tax reform is still on the short list of goals for the current administration. And although section 1031 isn’t directly mentioned anywhere in the “Blueprint for Tax Reform” that began circulating in 2016, there are certain things that are mentioned that indirectly implicate this favorite tax-deferral strategy. But what would the impact of repeal actually be? Would it only impact investors, keen on deferring capital gains taxes? According to several recent studies, no. According to a 2015 macroeconomic study by Ernst & Young, “the repeal or limitation of §1031 would not only have an adverse impact on […]
Tenancy in Common (TIC) is a way for two or more individuals to have an undivided fractional ownership interest in a single property. With a TIC, each owner has individual rights and obligations related to the property. These rights equal the proportionate share of the owner’s interest. Having an ownership interest in a TIC gives an investor the right to his or her proportionate share of net income, tax benefits and appreciation. The TIC owner is treated similarly to a fee simple owner and receives an individual property deed and title insurance for his or her share of the property. A TIC owner may bequeath his or her interest to […]