Live Support Chat

Category Archives: 1031 Exchange Replacement Property

1031 Exchanges – Speak the Language

For an investor 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. 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 […]

Fractional Ownership Real Estate Investments: How Many Owners is Too Many?

For many investors, buying their first investment property is just the beginning. After getting a taste of the benefits of investment real estate, they often wonder “what’s next?” Especially if they’ve harnessed the power of a 1031 exchange to reduce capital gains tax liability and grow their portfolio even faster. As a savvy investor, perhaps you are ready to step up to 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 – and potentially more lucrative – pieces of investment real estate than they could do on their own. But one question any investor […]

Understanding the “Same Taxpayer Rule” in 1031 Exchanges

When it comes to things involving the IRS, it’s all about rules. Knowing them. Understanding them. Following them. After all, it is fairly well-known that the IRS is not a very forgiving entity when it comes to bending rules or even taking a generous rule towards interpreting compliance with their complicated tax code. This is as true as ever when it comes to 1031 exchanges. To maximize your chances of successfully deferring capital gains taxes, it pays to understand all the rules surrounding them. One of the trickier ones has to do with who is the named entity in the sale and purchase of exchange-related property. In the eyes of […]

Not Everything Qualifies for a 1031 Exchange

The IRS is surprisingly generous when it comes to the types of investment or business property that qualify for section 1031 exchange purposes. But their generosity is not limitless. In fact, some things might initially seem to meet the general criteria of “property held for business or investment purposes” still may not qualify for a 1031 exchange. This includes stocks, bonds, notes, securities and interests in partnerships. Other property that is “held primarily for sale,” such as business inventory, is also excluded from qualification. This further extends to things like real estate bought with the intent to flip or vacant land that will be developed with a house. And, of […]

Can You Exchange Your Primary Residence?

I am often approached by homeowners lucky enough to have built up extensive appreciation in their primary home. Trying to avoid excessive capital gains taxes, they often want to explore the option of utilizing section 1031. They are often disappointed when I point out that the IRS code explicitly prohibits private residences from eligibility in Section 1031. Do you have any options to avoid hefty capital gains taxes? One option is, of course, to use the 250,000/500,000 exclusion permitted by tax code on the sale of your primary residence. But that still leaves any equity above and beyond that amount (after you’ve subtracted the original purchase price and any capital […]

Calculating Adjusted Cost Basis for a 1031 Exchange

Before you begin any 1031 exchange, you must understand your capital gain (or loss) from the sale or disposition of your relinquished 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. Knowing this number will help you evaluate the best way to proceed with the disposition of […]

Where does “Good Faith” Fit in a 1031 Exchange?

Even investors with the best intentions sometimes hit a roadblock that threatens to derail their carefully planned 1031 exchange. So how forgiving is the IRS when it comes to extenuating circumstances? Not very. Countless cases exist where taxpayers missed deadlines by just a few days and saw the IRS deny their exchange. For example, take the 1998 case of Knight v. Comm. In it, the Knights were supposed to close on their replacement property on the 179th day; however the deal unexpectedly fell through. The Knights went on to acquire another replacement property shortly after the 180 days expired, and argued to the IRS that they had made a “good […]

What Makes a Self-Storage TIC Such a Great Investment?

For the real estate investor looking to move up in terms of the value and ROI of their real estate investment property, considering a co-ownership arrangement can be a very lucrative decision. After all, when multiple investors go in, they can buy a bigger and better property than would be possible on their own. So what if you could leverage the power of fractional ownership and buy in to a rental property that delivers corporate level returns (including monthly cashflow) without the corporate level investment requirement? You can with a unique new Tenancy in Common offering that harnesses the power of self-storage facilities with TIC ownership. What makes a self-storage […]

Rising Real Estate Prices are Fueling 1031 Exchange Popularity

A few years ago, when real estate prices took a plunge and many investors took a significant equity hit, section 1031 of the tax code seemed like an unnecessary thing. After all, if you were under water on your investment properties, worrying about capital gains taxes was the last thing on your mind. But now that prices have rebounded, investors are once again faced with the dilemma of how to handle potentially significant tax obligations in the form of capital gains exposure. These rising prices explain the renewed popularity of 1031 exchanges. This recent article in Financial Planning magazine, captures the essence of why section 1031 is enjoying its moment […]

What Happens When You Go Down in Value with Your 1031 Exchange?

Some investors new to the benefits of section 1031 often believe that “like-kind” means that both the relinquished and replacement properties must be identical in every way. This is, of course, not true. The “like-kind” requirement, in a nutshell, simply means that both properties must be similar in nature or use. There is no requirement that both properties share identical values. In fact, many 1031 exchanges are conducted where there is a significant difference in the price of the two properties. The only caveat to be aware of is that if the value of your replacement property is lower than the value of your relinquished property, the difference will be […]