Article Archive

Wed
10
Sep

Getting More by exchanging rather than selling

Submitted by Phil Ladd on Wed, 09/10/2014 - 12:18

If you own business or investment property, you may be able to save thousands of dollars by exchanging your assets instead of selling them.

A like-kind exchange under Internal Revenue Code Section 1031 allows you to defer the taxes on capital gains by exchanging rather than selling. This tax deferral is available for both real estate (dirt and everything screwed into it) and personal property (things you can pick up and move). This can save you in Federal and State taxes anywhere from 15% to 35% on each dollar of gain realized, depending on your state’s tax rates.

There are a few basic steps that will be required under code section 1031 to enjoy this great financial advantage.

Wed
11
Feb

How Can A Loss Be A Gain....?!

Submitted by Bridget Blevins on Wed, 02/11/2009 - 01:00

What happens when you sell exchange property at a loss? Let’s say you sell a property for $175,000 that you bought in an exchange for $200,000 – most of you would think that you have a loss of $25,000, but in fact you probably have a gain.

--Gary Gorman

What Happens When You Sell An Exchange Property At A Loss?
by Gary Gorman founding partner, 1031 Exchange Experts, LLC

In today’s real estate market, this is a great question that commonly arises: "What does happen if you sell a property bought in a 1031 exchange at a loss?" Let’s say, for example, you have a buyer with cash in hand offering you $175,000 for a rental property you paid $200,000 for as part of a 1031 exchange you did three years ago.

Wed
14
Jan

Section 121 - Congress Limits Gain Exclusion on the Sale of Some Primary Residences

Submitted by Gary Gorman on Wed, 01/14/2009 - 01:00

When Congress passed the Housing Assistance Act of 2008 a few months ago, their goal was to help those people who were losing their homes in foreclosure. One of the side affects of the bill, however, was a change that could effect taxation on the gain from the sale of your personal residence.

IRS law excludes $250,000 of the gain from taxation if you're single, and $500,000 if you're married, when you sell a primary residence you've lived in for at least two years of the last five years. This is so even if a portion of the gain was rolled over into the property in a 1031 exchange transaction.

...This new law penalizes you for the time your property was not your primary residence...

Tue
25
Nov

Capitalize on the Current Real Estate Market with a Reverse Exchange

Submitted by Gary Gorman on Tue, 11/25/2008 - 01:00

With a typical 1031 exchange, you can sell your investment property without paying taxes when you purchase another investment property of equal or greater value. But, there's a hitch - you must sell your old property before you buy your new property within a strict 180-day time frame - in order to qualify for a 1031 exchange.

What happens if you need or want to purchase the new property before selling the old property? For example, you run into a delay on the sale of your old property or you want to take advantage of a down market to invest in foreclosed properties while you're waiting for the market to ramp back up - but you're not ready to sell your current property's? This is where the reverse 1031 exchange comes in.

...Sophisticated investors are using reverse exchanges to make purchases now, when the market is slow and prices are low...

Wed
05
Nov

Cost Segregation Studies and 1031 Exchanges

Submitted by Gary Gorman on Wed, 11/05/2008 - 01:00

Coming from my background as a CPA, and making my living in the real estate industry, I’m amazed that more of my clients don’t have cost segregation studies done on their properties. If you are one of the vast majority of property owners who’ve never heard of a cost seg study (as they are called), or don’t know what one is, you should take a look at this great tax benefit.

Wed
15
Oct

Using 1031 Exchanges to Shift Gains Between Tax Years

Submitted by Gary Gorman on Wed, 10/15/2008 - 01:00

As we start to wind down towards the end of the year, now is a good time to point out that 1031 exchanges are a great vehicle to use in shifting gain between two tax years. For example, if Fred and Sue sell their purple duplex on December 1, 2008, their 45-day identification deadline for their exchange is January 14, 2009. Section 1031 of the Internal Revenue Code requires that they send a list of potential acquisition properties to their intermediary no later than, in this example, this date. Failure to do so will terminate their exchange, causing the gain from the sale of their purple duplex to be taxable.

Wed
17
Sep

How Owner Carry Notes Impact 1031 Exchanges

Submitted by Gary Gorman on Wed, 09/17/2008 - 01:00

In this current climate of lender uncertainty, we’re getting a lot of questions about “owner carry” notes and how they impact a 1031 exchange. Whether you call it seller financing, contract for deed or purchase money mortgage, what we are talking about is the amount of financing the seller of a property is willing to help the buyer with.

Let’s say that you are selling your investment property for $100,000, and the buyer of your property is able to put up $80,000 in cash (whether from a loan, his own funds or both), but the buyer needs you to carry back the difference of $20,000. You want to do a Section 1031 exchange, but you’re uncertain how the $20,000 note would affect it.

Wed
20
Aug

Saving A Failed Exchange

Submitted by Gary Gorman on Wed, 08/20/2008 - 01:00

We occasionally get a client who, for one reason or another, is unable to complete their exchange, usually because they cannot find suitable replacement property. If they don’t identify ANY replacement property, their exchange ends at midnight on the 45th day. We return their funds to them the next day and they pay tax on the sale. If they DO identify replacement property by the 45th day, their exchange continues until either: A) they purchase their new property, or B) their replacement period expires on the 180th day. If they don’t purchase, their exchange funds are then returned on the 181st day. Again, their sale is taxable because they did not complete the exchange.

Wed
16
Jul

Uncertain Times: Planning Your Real Estate Tax Alternatives

Submitted by Gary Gorman on Wed, 07/16/2008 - 01:00

These are crazy, uncertain times. If you’re selling a property, do you know what to do? Do you sell it and pay the tax, or do you roll the dice on a 1031 exchange? Is this a once-in-a-lifetime opportunity to take your gain at a low tax rate (as low as we may see for awhile)? Or is paying the tax simply a waste of money? What if I told you there is a way to take the guesswork out of your decision?

As I write this, McCain and Obama are neck and neck in the race to see who will be the next President of the United States. The one who wins will probably be the one who is able to sway the greatest number of undecided voters to his side. Typically the undecided don’t make up their minds until the last minute, which means that this race looks like it could go down to the wire.

Tue
08
Jul

Recapturing 1031 Depreciation....

Submitted by Bridget Blevins on Tue, 07/08/2008 - 01:00

How Do I Recapture 1031 Depreciation...?

There are two general types of 1031 exchanges: one for Real Estate (including things that the IRS says are equivalent to real estate, such as oil & gas, mineral rights, air rights, etc.), and the other for Personal Property (things like cattle, aircraft, vehicles, things that move, etc.). One of the big challenges between these is that while the definition of like-kind Real Estate is applied very broadly, the definition of like-kind Personal Property is applied very narrowly. If you sell a horse, you have to exchange into another horse. And generally speaking, of the same sex and breed. A horse is not just a horse…!

But don’t vehicles or equipment go DOWN in value? If there’s no gain (assuming we're not talking about a collector’s item), why would someone want to do a 1031 exchange on the sale? Because an exchange defers the long-term capital gain and saves you from having to pay the taxes.

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