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Category Archives: 1031 Exchange Replacement Property

Can You Hold Your Own Cash in a 1031 Exchange?

In my work with 1031 exchange investors (in my roles as either the qualified intermediary or real estate professional), I often encounter investors who are delving into the world of 1031 exchanges for the first time. They understand the basic concept of trading investment property to defer tax liability, but are a little fuzzy on the steps of the process. One of the most important things any investor must know before even starting a 1031 exchange, is how the IRS treats the cash from the sale of the relinquished property. In order for the exchange to be valid, the very first hurdle is making sure the investor never has actual […]

Voiding a 1031 Exchange by Violating the Related Party Prohibition

The end of 2016 saw an interesting case come out of U.S. Tax Court. It had to do with an attempted 1031 exchange that violated a very important provision of the code – the prohibition against related parties engaging in an exchange together. While related parties may conduct exchanges together, the IRS requires that both parties must hold the property they receive at least two years. Failing to do so triggers immediate recognition of any gain. The single exception to this rule occurs if a taxpayer can convince the IRS that the exchange’s principal purpose was not tax avoidance. This is easier said than done. To read the details of […]

How is 2017 Looking for Net Lease Investments?

With the turmoil of 2016 behind us, investors are looking ahead to what the new year might bring. But just because the calendar has flipped to 2017, volatility and uncertainty are still at the forefront of most experts’ minds. The truth is, nobody – no matter their level of expertise – can precisely predict where the markets will go as the year unfolds. That being said, there is a sub-sector of the commercial real estate market that, historically, has achieved an impressively solid performance record. One whose hallmark is stability, no matter what’s happening elsewhere. Net lease investments offers several benefits to investors that aren’t found elsewhere, like minimal basis […]

The Basics of Delaware Statutory Trusts

A Delaware Statutory Trust (commonly referred to as a DST) is, as the name suggests, a legal entity created as a trust under Delaware state law. A DST is created for real estate investment purposes, and is especially useful in a 1031 exchange. Under a DST, investors each own a pro rata share of the DST itself. The DST in turn holds title to various real estate interests, and distributes any income received from the properties (either through rental income or the sale of the property) to the investors in proportion to their ownership share in the DST. The DST, via its signatory trustee, makes all decisions related to any […]

De Facto Ways to Identify Property in a 1031 Exchange

Anyone who has considered a 1031 exchange to defer capital gains taxes on the replacement of business or investment property should already know about the two strict (and concurrently running) deadlines governing these transactions – 45 days to identify replacement property and 180 days to close on it. And for many exchangers, identifying the possible replacement properties will occur in one of three ways: Three-Property Rule – Up to three alternate properties may be identified, regardless of their market values. 200% Rule – Any number of replacement properties may be identified, so long as the aggregate fair market value of the replacement properties does not exceed 200% of the aggregate […]

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 […]