Not true. What ever portion that you don't roll over into a new property, i.e. cash from an investment sale that hits your pocket... is considered "boot" - to which you pay taxes only on that portion!
you still get monthly income as well and that builds overtime and to a bigger amount the more houses you reinvest in the more profit you get to keep at the end of the month and that's play money so there really isn't a down side to it you just cant make a mistake but with a great accountant and bookkeeper you should be fine right?
Yes, one of the benefits of a 1031 exchange is that it allows you to defer paying capital gains taxes on the sale of an investment property, which can help you to accumulate wealth over time. By reinvesting the proceeds from the sale of a property into a replacement property, you can continue to earn rental income, which can help to increase your cash flow and overall return on investment. It is also true that, with a great accountant and bookkeeper, you can have a better chance of avoiding mistakes and be in compliance with the rules and regulations. However, it is still important to be aware of the rules and regulations and to work with a qualified intermediary and a tax advisor throughout the process to ensure that you are in compliance. It's important to note that some rules and regulations are subject to change over time and can vary by state, so it's always a good idea to consult with a tax professional to ensure that you are following the most current laws and regulations. Additionally, it's important to be aware that 1031 exchanges can be complex and that there are many rules that you must follow in order to qualify for a tax-deferred exchange. It's recommended to work with a qualified intermediary and a tax advisor to ensure that you are in compliance with all the rules and regulations and to ensure that you are making the most of your investment.
I like how you kept it simple and straight to the point. This is the reason why I love listening to different real estate pros. Everyone has their own personal approach to explaining this oh so many, laws and guidelines, and tips , that we can sometimes miss.
I believe you have 45 days to identify up to 3 properties, then 180 days to close on one of them. The debt rule is also tricky(I won't complicate my comment with these details, but this is a further complication), so make sure you have a good accountant to help you walk through this and a good title company who has a 1031 intermediary to exchange the property without breaking the rules.
Yes, that is correct. In a 1031 exchange, the taxpayer has 45 days from the date of the sale of the relinquished property to identify up to three potential replacement properties. The taxpayer then has 180 days from the date of the sale of the relinquished property, or the due date (including extensions) of the taxpayer’s tax return for the tax year in which the relinquished property was sold, whichever is earlier, to close on the purchase of one of the identified properties. The debt rule states that the amount of debt on the replacement property must be equal to or greater than the amount of debt on the relinquished property, in order to defer all of the capital gains taxes. It is important to have a good accountant and a reputable title company with a 1031 intermediary to ensure that the exchange is completed properly and within the rules set by the IRS.
@@infamist. I’ve never done one myself so I hope someone will correct any errors I make. But as I understand it, you need an intermediary to hold the cash profits from the relinquished property. If you take possession of that cash, deals off and you pay taxes. And I think that intermediary can be the title company who is closing on your relinquished property - I assume there are other options. Obviously you or your agent will want to give them a heads up that you are doing this. As for the paperwork I think you or your accountant can handle that at tax filing season with the proper filing forms. Corrections anyone?
Another grest video guys! Everyone Ive talked to said that a 1031 was a pain in the butt...but I dont think any of them have said they regretted doing it. So it is worth the complicated process and I look forward to doing my first 1031 in the next year or two!
That's why I love Brandon! I've watched a few videos and this way of high overview explanation explained a lot more than the other videos I've watched. Good show!
BRANDON, So the rules is: property has to be equal or higher value. Can I sell my 300k single family property and buy 3 single family homes at 100ea or it has to be 1 to 1. My 300k to buy a triplex or cuad. Or can I do 6 -50k properties ? Yes ? No?
Pretty sure you can buy several properties it doesn’t need to be just one as long as it’s equal or higher value, but if you’re combining more than three properties the values cannot exceed 200% of the market value of the relinquished property.
@Salvador Galvan - The rule for 1031 exchanges is that the replacement property must be of "equal or greater value" than the property being sold. This means that the total value of the replacement properties must be equal to or greater than the total value of the property being sold. The rule for 1031 exchanges is that the replacement property must be of "like-kind" and of "equal or greater value" than the property being sold. Like-kind refers to the type of property and its use, for example, a single-family home for another single-family home, a commercial property for another commercial property, etc. The value of the replacement property must be equal to or greater than the value of the property being sold. In your example, you can sell a $300,000 single-family property and buy three $100,000 single-family homes as long as they are like-kind properties, in other words, they have to be used for the same purpose as the property you're selling, and their total value of $300,000 is equal to or greater than the value of the property being sold. Also, you can sell a $300,000 single-family property and buy a triplex or quad for $300,000 or more. Or you can buy six $50,000 properties as long as their total value is greater or equal to 300,000. It's important to note that you will still need to identify the replacement properties within 45 days of selling the relinquished property and close on them within 180 days after the sale of the relinquished property. You'll also need to work with a Qualified Intermediary (QI) or an attorney who will facilitate the 1031 exchange process, and you should consult with a tax professional to understand the tax implications of the transaction.
@@Retrocrzy You are correct that you can buy several properties as part of a 1031 exchange, and it does not need to be just one as long as the total value of the replacement properties is equal to or greater than the value of the property being sold. In addition, there is a rule called the "200% rule" which states that the total value of the replacement properties should not exceed 200% of the value of the property being sold. This means that if you're selling a $300,000 property, you can identify up to $600,000 worth of replacement properties. Keep in mind that you need to identify the replacement properties within 45 days of selling the relinquished property and close on them within 180 days after the sale of the relinquished property. It is also important to work with a Qualified Intermediary (QI) or an attorney who will facilitate the 1031 exchange process, and consult with a tax professional to understand the tax implications of the transaction.
Thank you for sharing this! This type of exchange helped me get into my home that I now live in and helped me acquire a four unit rental property that I still own! Thank you for sharing this!!!
Coach Dom Costa , are you saying that you made the 1031 exchange property your primary residence? If so, can you explain the circumstances that made this doable? Thanks in advance.
Ok. Can I as an individual without a realtor license qualify for 1031 exchange? How much money do I need put in? I’m looking for additional ways to increase the income. Any help is appreciated.
Branden you are very entertaining and speak to be understood! This was a great refresher course and appreciate you throwing it out there! Great way to build wealth!
Starting a 1031 exchange can seem overwhelming at first, but it's a relatively straightforward process once you understand the steps involved. Here are the general steps you can take to start your 1031 exchange: 1. Identify your property: The first step is to identify the property you want to sell and the property you want to acquire. Both properties must be identified within 45 days of the sale of the first property. 2. Hire a qualified intermediary: You will need to hire a qualified intermediary (QI) to handle the exchange process. The QI will act as an intermediary between you and the buyer/seller of the properties, and will also hold the proceeds from the sale of the first property until they are used to purchase the new property. 3. Close on the sale of the first property: Once you have identified your properties and hired a QI, you can proceed with the sale of the first property. The proceeds from the sale will be held by the QI until they are used to purchase the new property. 4. Identify the replacement property: Within the 45-day identification period, you must identify the replacement property you wish to acquire. Once identified, the QI will provide written documentation of the identification to you. 5. Close on the purchase of the replacement property: Once the replacement property has been identified, you have 180 days from the sale of the first property to close on the purchase of the replacement property. 6. Complete the exchange: Once you have closed on the purchase of the replacement property, the exchange is complete. The QI will then release the proceeds from the sale of the first property to the seller of the replacement property. It's important to keep in mind that the 1031 exchange process can be complex and time-sensitive, and it's essential to work with a qualified intermediary who can guide you through the process. It's also important to consult with a tax advisor or attorney to ensure that you comply with all the rules and regulations and to ensure that a 1031 exchange is the right choice for you.
been watching a lot of ben mallah and he utilizes the 1031 non stop. thanks for explanation. My question is with the "always buy a more expensive property than you sold". Ben does buy expensive real estate but unless you can have multiple 1031's won't you eventually hit an inevitable cap of property price? Where do you go from a 20 million dollar hotel? 40? 50? 100?
It is true that in a 1031 exchange, the replacement property must be of equal or greater value than the relinquished property in order to defer all of the capital gains taxes. And as you pointed out, there may be a limit to how much property value you can acquire through 1031 exchanges, especially if you are only able to complete one exchange at a time. However, it is not necessarily the case that an investor must always acquire more expensive properties in order to be successful. The value of the property is not the only factor to consider when making an investment decision. An investor may also look at the property’s cash flow, potential for appreciation, and the investor’s overall investment strategy. Furthermore, there are other structures and options available to investors that allows to exchange properties of different value like Reverse 1031 exchange, Delayed 1031 exchange, Improvement exchange etc. It is important for investors to carefully evaluate all options and consider their own investment goals and strategies before making a decision. Consulting a tax professional and a real estate expert can also be helpful in making informed decisions.
Question. So do the capital gain taxes accumulate with every property you trade? Or do you only pay taxes on the last property you trade and liquidate?
Under a 1031 exchange, you do not have to pay capital gains taxes on the sale of the property you are exchanging, as long as you use the proceeds to acquire a "like-kind" property. The taxes on the gain from the sale of the first property are deferred until you sell the replacement property and do not liquidate it or exchange again. It's important to note that the key to a successful 1031 exchange is to not take any "boot" or cash out from the sale of the first property. If you take cash or cash equivalents out of the transaction, you will be required to pay taxes on that amount. It's also worth noting that the IRS has strict rules for 1031 exchanges, and it's important to consult with a tax advisor or attorney to ensure that you comply with all the rules and regulations. In addition, the IRS has a rule called the "related party rule" that prohibits related parties from conducting a 1031 exchange, and the "hold period" requirement which states that you must hold the property for a certain period of time before selling it, to qualify for tax-deferred treatment. It's important to keep in mind that the 1031 exchange is a complex process and it's best to work with a qualified intermediary, tax advisor, and attorney to ensure that you comply with all the rules and regulations and to ensure that a 1031 exchange is the right choice for you.
I sell my Single Family Rental (Investment Property in Texas) and buy another investment property in Orlando (Equal or greater in value) this is a like kind 1031 Exchange. In doing so, I avoid paying Capital Gains Tax. How soon can I move into the Orlando Property and make it my Primary residence?? ... NOTE: Selling an Investment Property to buy a Primary Residence DOES NOT qualify as a 1031 Exchange and Capital Gains will be due. Filing taxes as a 1031 Exchange after the purchase of the second Investment property then moving in now makes it my Primary Residence. Would the IRS have anything to say about that?
Hey thanks for the video. Well put together, I really appreciate it. I heard you say you need to invest in a more expensive property, does it need to be another income property or commercial property?
Brandon, what reputable 1031 exchange company will you suggest? I am trying to avoid being defrauded by all of these shady companies out there. Thank you!
There are a number of reputable 1031 exchange companies that can assist you with your exchange. Some of the companies that have a good reputation in the industry include: 1. Accruit: A national qualified intermediary (QI) company that provides 1031 exchange services. They have a reputation for providing excellent customer service and have been in business for more than 20 years. 2. IPX1031: A national qualified intermediary company that specializes in 1031 exchanges. They have a reputation for providing expert guidance and personalized service. 3. Sterling 1031 Exchange: A national qualified intermediary that provides 1031 exchange services. They have a reputation for providing excellent customer service and have been in business for more than 20 years. 4. 1031 Exchange Place: A national qualified intermediary company that specializes in 1031 exchanges. They have a reputation for providing expert guidance and personalized service. It's important to note that these are just a few examples of reputable companies, and it's always best to do your own research and due diligence when choosing a 1031 exchange company. It's always a good idea to get referrals from other investors, as well as check the company's Better Business Bureau rating, and look for any complaint or lawsuit filed against them. It's also worth noting that it's important to understand that there is a risk of fraud in any financial transaction, including 1031 exchanges, and it's important to take appropriate precautions to protect yourself. Consult with a tax advisor or attorney before making any decisions or taking any actions related to a 1031 exchange.
What if the parents want to do a 1031 exchange and invest on a property that the children will live in. What are the stipulations and requirements based on the percentage of owned property for both parties in regards to cost of FMR, property taxes and insurance. Can the parents ever transfer that property to the childeren(before they pass away) without the children having to pay the capitol gains tax?
If parents want to do a 1031 exchange and invest in a property that their children will live in, there are certain stipulations and requirements that must be met in order to qualify for a tax-deferred exchange. First, the parents must own the property that is being sold, and the replacement property must be held in the same ownership as the property that is being sold. In terms of cost of fair market rent, property taxes, and insurance, the parents will be responsible for paying these costs as long as they are the legal owners of the property. If the parents wish to transfer the property to their children before they pass away, they can do so through a process called a "gift." However, if the parents transfer the property to the children while they are still alive, the children will be responsible for paying any capital gains taxes that are owed on the property at the time of the transfer. It's important to note that gifting a property may have other tax implications, such as gift taxes. Also, the parents should consult with a legal and tax professional to understand the implications of gifting the property, and to ensure compliance with all applicable laws and regulations. Additionally, there are certain strategies that can be used to minimize or eliminate the capital gains tax when transferring property to children, such as a Qualified Personal Residence Trust (QPRT) or a Family Limited Partnership (FLP). These strategies are complex and require the guidance of a legal and tax professional.
In a 1031 exchange, also known as a like-kind exchange, the loan on the original property typically stays with the original owner and is not transferred to the new owner. The original owner would typically need to obtain financing for the new property in a separate transaction.
In a 1031 exchange, the property you acquire must be of equal or greater value than the property you are selling. The difference in value, known as "boot," is subject to capital gains tax. If the place you are buying is slightly less in value than the property you are selling, you can use cash or other assets to "boot up" the value of the new property. However, any cash or assets used in this way would be subject to capital gains tax. Regarding upgrading the new property with the balance, it's important to note that the IRS has strict rules about what constitutes a "like-kind" property. Improvements or upgrades made to a property do not qualify as like-kind, only the underlying land and property itself. Using the proceeds from the sale to make upgrades to the new property would be considered as "boot" and subject to capital gains tax. It's always best to consult a tax advisor or attorney before making any decisions or taking any actions related to a 1031 exchange. They will be able to advise you on the best way to structure the exchange to minimize tax implications.
The key requirement of a 1031 exchange is that the properties being exchanged must be “like-kind.” This means that the properties must be used for the same type of investment or business purpose. For example, a rental property can be exchanged for another rental property, but not for a personal residence.
So you cant use a 1031 exchange on houses? Like.. buying a vacant lot building a house from the ground up and selling it for profit then use a 1031 exchange to buy another property?
You said this only applies to rental properties? As a flip why could I not do a 1031 to buy a larger more expensive property with a larger spread? Instead of selling paying cap gains tax and turning around anyways just to find my next flip property????
yeah but what do you do when you have a 1031 exchange borrower and the trust is irrevocable because the grantor of the original revocable trust has died and the beneficiary has to close in the 1031 exchange entity and not in her personal name/social and lenders won't allow you to close in irrevocable trusts? My client is dealing with this now and she doesn't want to close in her personal name and deed the property to the trust post closing because she feels like she will be hit with cap gains tax. She is the Trustee of this now irrevocable trust. any guidance would be truly appreciated.
So, I purchased a house and renovated it and I'm selling it. Can I take the purchase price from that home and purchase another property to do STR (short term rental)? Also, you. mention the property will have to be more in cost than the one I'm selling?
The IRS requires that in order to qualify for a tax-deferred exchange under Section 1031, you must reinvest all of the proceeds from the sale of the first property into the replacement property. If you take any cash or cash equivalents (referred to as "boot") out of the transaction, you will be required to pay taxes on that amount. There is no specific percentage requirement for how much of the proceeds from the sale of the first property must be reinvested into the replacement property. The IRS simply requires that all proceeds from the sale be reinvested. However, there are some strategies that allow you to access some of the equity from the sale of the property while still qualifying for a 1031 exchange. For example, you could use a "Starker" exchange, also known as a delayed exchange, which allows you to temporarily hold the proceeds from the sale of the first property in a qualified intermediary's account while you identify and acquire a replacement property. During this time, you may be able to access a portion of the proceeds, but it will be subject to taxes and penalties. It's important to note that these strategies can be complex and have many rules that you must follow. It's recommended to work with a qualified intermediary and a tax advisor to ensure that you are in compliance with all the rules and regulations and to ensure that you are making the most of your investment.
Im new to 1031 exchange. Can you sell a rental and use part of the equity on the 1031 exchange and pay off debt with the rest. I will be getting another investment property loan using the 1031 for down payment and closing cost.
Ok so my question is if I 1031 exchange a property into a second property, when I decide to sell that second property and not do another 1031, will I have to pay capital gains tax from the FIRST property AND the second one...or just the 2nd one?
When you sell a property that you acquired through a 1031 exchange, you will be required to pay capital gains taxes on the appreciation of the property that occurred after the exchange. This is known as the "built-in gain." The built-in gain is the difference between the fair market value of the property at the time of the exchange and your adjusted basis (usually purchase price plus any capital improvements) in the property. So if you bought a property for $100,000 and exchanged into a property worth $200,000 then your built-in gain would be $100,000. If you decide to sell the second property and not do another 1031 exchange, you will be required to pay capital gains taxes on the built-in gain from the second property and any additional appreciation that occurred after the exchange. This means that you would not be paying capital gains taxes on the first property, just the second one. It's important to note that the built-in gain is calculated at the time of the exchange, and any depreciation taken on the property prior to the exchange will be recaptured and taxed as ordinary income at the time of sale. Additionally, you will also be subject to state taxes on the sale of the property. As always, it's important to consult with a tax advisor and a qualified intermediary to ensure that you are complying with all the rules and regulations and to ensure that you are making the most of your investment.
Great video. Very informative. Let me throw wrinkle in this. So a rental property burned down. The insurance payed out damages and I'm selling the burned structure next month. When does the 45 day timer start? At the insurance payout OR the sale date? What is the tax rate on the sale if I don't 1031? 17% capital gains? My regular 24% tax rate?
The 45-day timer for identifying potential replacement properties in a 1031 exchange starts on the date of the sale of the relinquished property, in this case, the date of the sale of the burned structure. If you do not complete a 1031 exchange, the tax rate on the sale of the burned property will depend on your income tax bracket. The capital gains tax rate for individuals in the 24% bracket is generally 15%, and the long-term capital gains tax rate for individuals in the highest tax bracket is 20%. However, the actual tax rate could be different depending on your specific situation and other factors such as state taxes. It is always recommended to consult a tax professional for accurate and specific advice regarding your situation.
So you’re telling me that I can refinance my home, take that cash, put it on my pocket, then turn around and sell my home and use a 1031 exchange to buy a bigger home and not pay any taxes on the refinance or the sell!?
I guess I would like to ask is can't you line everything up before you make the transaction on the first property I guess theoretically what I'm saying is if you know what property you want to get you know what you want to do with it after you look at it you don't have to agree to buy it that day you know you can look at it and see what you have to do to it or whatever and you go out and find the other property that you want to basically take your earnings from the first property and invest in so if you do that won't be better than literally doing the transaction on the first property and you have this time line that starts and you have to finish before the timeline is ended like wouldn't that be better I don't know if that makes sense and is that possible to do have your ducks in a row before you even throw the money for the first property you already have the second property already lined up and in mind of what you want to do or two or three properties lined up in mine from the first property before you make the transaction? Is this possible
Yes, it is possible to have your ducks in a row before making the transaction on the first property in a 1031 exchange. This strategy is known as a "reverse exchange" or "park and swap." In a reverse exchange, the investor identifies and acquires the replacement property before disposing of the relinquished property. This allows the investor to have control over the replacement property while they continue to search for a buyer for the relinquished property. It is important to note that there are specific rules and guidelines that must be followed when using a reverse exchange, and it is recommended to work with a qualified intermediary or attorney to ensure compliance with IRS regulations.
Can someone help i didn't know this rule so basically on my first flip i made 40k profits then used that money on another flip withing a week without using 1031 can i still fix it with a good accountant??
Can you use only a portion of the income as an exchange. If you make 100k off your sale can keep half and pay capital gains and exchange the other half?
Yes, it is possible to use only a portion of the proceeds from a sale in a 1031 exchange. This is known as a "partial exchange." However, there are certain rules that must be followed in order to qualify for the tax deferral benefits of a 1031 exchange. One of the rules is that the entire proceeds from the sale of the relinquished property must be used to acquire the replacement property. Additionally, the replacement property must be of equal or greater value than the relinquished property. It's important to check with your tax advisor and make sure you follow the IRS rules for a 1031 exchange.
Yes and no. Theoretically, you can avoid taxes for life if you never sell the property (he mentions this at 3:15 or so). What he doesn't mention is that your estate could be potentially pay the inheritance tax (talk to a CPA regarding your specific situation).
Hi! Thank you for encouraging me to look into this. I am planning to go through my very first 1031 by selling my investment property next month. I am afraid I may not find a renter for the new investment property with the virus situation. Can I move in the property after a certain time if this happens? 1) If yes, then what is this time frame. OR 2) I just need to keep reducing rent even if I am not able to cover my mortgage payment with the rent. Your answer helps me make one of the big decisions of my life. Thank you!
1. In order to qualify for a 1031 exchange, you must follow the “like-kind” and “holding period” rules. The like-kind rule requires that the property you acquire in the exchange be similar or of the same nature as the property you are selling. The holding period rule requires that you hold the property for investment or business use, and not for personal use. If you move into the property after the exchange, it may be considered personal use and would disqualify you from the 1031 exchange. However, the IRS has provided a safe harbor for rental property held for at least 24 months before it is converted to personal use, it will not be considered as disqualified for 1031 exchange. 2. It is not advisable to move into the property and cover mortgage payments with rent, as it may qualify you from the 1031 exchange. If you are facing a difficult time renting the property, it is best to consult a tax advisor to discuss your options.
In order to qualify for a tax-deferred exchange under Section 1031 of the Internal Revenue Code, you must use the proceeds from the sale of the first property to acquire a replacement property. If you take any cash or cash equivalents (referred to as "boot") out of the transaction, you will be required to pay taxes on that amount. This means that if you take any profit from the sale of the first property before the closing of the second property, it would be considered as "boot" and you would be required to pay taxes on that amount. Additionally, you have a strict time frame for identifying and acquiring a replacement property after the sale of the first property, usually 45 days to identify and 180 days to close the replacement property. It's important to work with a qualified intermediary and a tax advisor to ensure that you are in compliance with all the rules and regulations and to ensure that you are making the most of your investment.
Couldn't you find some grace with the 45 days by looking for those great deals before you ever decide to use the 1031? Like say you know that 1031 is coming up soon, couldn't you get a running start looking for deals before the 1031 45 days goes active?
Ok. Can I as an individual without a realtor license qualify for 1031 exchange? How much money do I need put in? I’m looking for additional ways to increase the income. Any help is appreciated.
As an individual, you can qualify for a 1031 exchange without a realtor license. There is no specific requirement for a realtor license to participate in a 1031 exchange. In terms of the amount of money you need to put in, there is no minimum or maximum amount required for a 1031 exchange. The key requirement is that the property you acquire in the exchange must be of equal or greater value than the property you are selling. The difference in value, known as "boot," is subject to capital gains tax. In addition to the equal or greater value requirement, you must also comply with the "like-kind" and "holding period" rules as well as the time frame for the exchange. 1031 exchange can be a great way to defer paying taxes on the sale of a property, and it can also be used as a strategy to increase income by acquiring property with higher rental income or appreciation potential. However, as with any financial decision, it's important to consult with a tax advisor or attorney to make sure that a 1031 exchange is the right choice for you and that you comply with all the rules and regulations.
So in a 1031 exchange do we have to use all the money for example if you sell a property for $115k and buy a property for $110k after fixing it up you would have 5k what would happen to that $5k?
In a 1031 exchange, you can defer paying capital gains taxes on the sale of a property by using the proceeds from that sale to acquire a "like-kind" replacement property. The key to making a profit in this scenario is that the replacement property must be of equal or greater value than the relinquished property. If the replacement property is of greater value, the difference between the two properties represents the potential for profit. For example, if you sell a property for $100,000 and use the proceeds to acquire a replacement property for $150,000, you have made a $50,000 profit, which is not subject to capital gains taxes until you sell the replacement property. Additionally, the replacement property usually should generate cash flow or have a potential for appreciation in the future. It's advisable to consult with a tax advisor and real estate professional to make sure you understand the rules and benefits of a 1031 exchange, as well as the potential risks and downsides.
What if my grandpa sold a home to me for $1 and transferred it into my name? This was done in 2014. It was my primary residence 2 out of the last 5 years...can I do a 1031 or am I stuck paying capital gains (minus $250 deduction.) ?
The 1031 exchange is for investment property not personal residence. Its meant to be a exchange of investment property (though not necessarily just rental property) for other investment property.
Question Brandon, this is a great video. I'm new to the real estate Investing. I just got the burrr book. If you are using the brrr method can you avoid the 1031 exchange?
Wait...What?Why wouldn't this be applicable to house flippers again?It makes perfect sense for this to be available to flippers also so what is the issue the IRS have with flippers?
He mispoke in the video I'm pretty sure. The reason it does not apply to flippers is that the selling of property for monetary gain and then finding another property to invest said monetary gains is a taxable event. Has to be an EXCHANGE of this for that to work within the allotted timeframes AND has to be well described as such before you do anything.
Flippers are considered 'self employed' and the gains are taxed as income,and self employment taxes paid. Landlords fall under real estate investors, with depreciation and annual write offs, and are taxed less than flippers. It is long term, therefore, there are more opportunities and tax breaks. I had the same question, my accountant explained it
A 1031 exchange can have some potential effects or problems for the buyer of a property that was sold through a 1031 exchange. One potential issue is that the property may be overpriced, as the seller may be looking to recoup the costs of their own 1031 exchange. Additionally, the property may have deferred maintenance or other issues that were not addressed by the seller, as they were focused on completing the 1031 exchange. The buyer may also have to wait a longer period of time to close the sale, as the 1031 exchange process can add additional time to the transaction. Additionally, the buyer may need to be aware of the replacement property rules and regulations that the seller must follow when completing a 1031 exchange, as it could affect the property ownership rights of the buyer.
The 1031 exchange process can be complex and time-sensitive, and it's important to comply with all the rules and regulations set forth by the IRS. While it's technically possible to complete a 1031 exchange on your own, it's often best to work with a qualified intermediary (QI), a tax advisor, or an attorney to ensure that the process goes smoothly and that you are in compliance with all the rules and regulations. A Qualified Intermediary is a neutral third party that facilitates the exchange process by holding the proceeds from the sale of the first property in escrow until they are used to purchase the replacement property. They will also provide written documentation of the identification of the replacement property to you. A CPA or Tax advisor can provide guidance on the tax implications of the exchange, and can help you plan for the future to make the most of your investment. An attorney can help with the legal aspects of the transaction and ensure that all the paperwork is in order. It's also worth noting that there are several reputable 1031 exchange companies that specialize in facilitating 1031 exchanges and can provide a range of services to make the process as easy as possible. These companies can help with everything from identifying and qualifying replacement properties, to handling the paperwork and closing the transaction. In any case, it's important to do your research and choose a qualified professional with experience in 1031 exchanges to help guide you through the process. This way you can ensure that you are in compliance with all the rules and regulations, and that you are making the most of your investment.
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YES! BUT ONLY IF YOU PLAN TO REINVEST “ALL” THE MONEY! IT’LL HELP YOU AVOID THE TAXES, BUT HAS TO ALL BE REINVESTED.
YEAH BUT YOU CAN JUST DO A 2ND MORGAGE OR A LINE OF CREDIT AND PULL YOUR MONEY OUT AGAIN
Not true. What ever portion that you don't roll over into a new property, i.e. cash from an investment sale that hits your pocket... is considered "boot" - to which you pay taxes only on that portion!
@@BradSabako you can mark it as a qualified dividens to get low capital gain taxes? (Or u gotta live there for 2yrs)
you still get monthly income as well and that builds overtime and to a bigger amount the more houses you reinvest in the more profit you get to keep at the end of the month and that's play money so there really isn't a down side to it you just cant make a mistake but with a great accountant and bookkeeper you should be fine right?
Yes, one of the benefits of a 1031 exchange is that it allows you to defer paying capital gains taxes on the sale of an investment property, which can help you to accumulate wealth over time. By reinvesting the proceeds from the sale of a property into a replacement property, you can continue to earn rental income, which can help to increase your cash flow and overall return on investment.
It is also true that, with a great accountant and bookkeeper, you can have a better chance of avoiding mistakes and be in compliance with the rules and regulations. However, it is still important to be aware of the rules and regulations and to work with a qualified intermediary and a tax advisor throughout the process to ensure that you are in compliance.
It's important to note that some rules and regulations are subject to change over time and can vary by state, so it's always a good idea to consult with a tax professional to ensure that you are following the most current laws and regulations. Additionally, it's important to be aware that 1031 exchanges can be complex and that there are many rules that you must follow in order to qualify for a tax-deferred exchange. It's recommended to work with a qualified intermediary and a tax advisor to ensure that you are in compliance with all the rules and regulations and to ensure that you are making the most of your investment.
I like how you kept it simple and straight to the point. This is the reason why I love listening to different real estate pros. Everyone has their own personal approach to explaining this oh so many, laws and guidelines, and tips , that we can sometimes miss.
I love how you broke this down. So easy to understand!
I believe you have 45 days to identify up to 3 properties, then 180 days to close on one of them. The debt rule is also tricky(I won't complicate my comment with these details, but this is a further complication), so make sure you have a good accountant to help you walk through this and a good title company who has a
1031 intermediary to exchange the property without breaking the rules.
Yes, that is correct. In a 1031 exchange, the taxpayer has 45 days from the date of the sale of the relinquished property to identify up to three potential replacement properties. The taxpayer then has 180 days from the date of the sale of the relinquished property, or the due date (including extensions) of the taxpayer’s tax return for the tax year in which the relinquished property was sold, whichever is earlier, to close on the purchase of one of the identified properties. The debt rule states that the amount of debt on the replacement property must be equal to or greater than the amount of debt on the relinquished property, in order to defer all of the capital gains taxes. It is important to have a good accountant and a reputable title company with a 1031 intermediary to ensure that the exchange is completed properly and within the rules set by the IRS.
@@rishabrege3479 who does the 1031 exchange? The bank? Your Tax attorney?
@@infamist. I’ve never done one myself so I hope someone will correct any errors I make. But as I understand it, you need an intermediary to hold the cash profits from the relinquished property. If you take possession of that cash, deals off and you pay taxes. And I think that intermediary can be the title company who is closing on your relinquished property - I assume there are other options. Obviously you or your agent will want to give them a heads up that you are doing this. As for the paperwork I think you or your accountant can handle that at tax filing season with the proper filing forms. Corrections anyone?
Another grest video guys! Everyone Ive talked to said that a 1031 was a pain in the butt...but I dont think any of them have said they regretted doing it. So it is worth the complicated process and I look forward to doing my first 1031 in the next year or two!
1:03 031 Exchange is a way to defer tax payments at a later time... and possibly defer them forever.
Thanks
That's why I love Brandon! I've watched a few videos and this way of high overview explanation explained a lot more than the other videos I've watched. Good show!
Delaware statutory trust. Learn something new every day. Thank you!
More people should yell when they explain things. Its the only way I retain information : ). Great stuff!
BRANDON, So the rules is: property has to be equal or higher value. Can I sell my 300k single family property and buy 3 single family homes at 100ea or it has to be 1 to 1. My 300k to buy a triplex or cuad. Or can I do 6 -50k properties ? Yes ? No?
Pretty sure you can buy several properties it doesn’t need to be just one as long as it’s equal or higher value, but if you’re combining more than three properties the values cannot exceed 200% of the market value of the relinquished property.
@Salvador Galvan - The rule for 1031 exchanges is that the replacement property must be of "equal or greater value" than the property being sold. This means that the total value of the replacement properties must be equal to or greater than the total value of the property being sold.
The rule for 1031 exchanges is that the replacement property must be of "like-kind" and of "equal or greater value" than the property being sold. Like-kind refers to the type of property and its use, for example, a single-family home for another single-family home, a commercial property for another commercial property, etc. The value of the replacement property must be equal to or greater than the value of the property being sold.
In your example, you can sell a $300,000 single-family property and buy three $100,000 single-family homes as long as they are like-kind properties, in other words, they have to be used for the same purpose as the property you're selling, and their total value of $300,000 is equal to or greater than the value of the property being sold.
Also, you can sell a $300,000 single-family property and buy a triplex or quad for $300,000 or more. Or you can buy six $50,000 properties as long as their total value is greater or equal to 300,000.
It's important to note that you will still need to identify the replacement properties within 45 days of selling the relinquished property and close on them within 180 days after the sale of the relinquished property. You'll also need to work with a Qualified Intermediary (QI) or an attorney who will facilitate the 1031 exchange process, and you should consult with a tax professional to understand the tax implications of the transaction.
@@Retrocrzy You are correct that you can buy several properties as part of a 1031 exchange, and it does not need to be just one as long as the total value of the replacement properties is equal to or greater than the value of the property being sold.
In addition, there is a rule called the "200% rule" which states that the total value of the replacement properties should not exceed 200% of the value of the property being sold. This means that if you're selling a $300,000 property, you can identify up to $600,000 worth of replacement properties.
Keep in mind that you need to identify the replacement properties within 45 days of selling the relinquished property and close on them within 180 days after the sale of the relinquished property. It is also important to work with a Qualified Intermediary (QI) or an attorney who will facilitate the 1031 exchange process, and consult with a tax professional to understand the tax implications of the transaction.
Thank you for sharing this! This type of exchange helped me get into my home that I now live in and helped me acquire a four unit rental property that I still own! Thank you for sharing this!!!
Coach Dom Costa , are you saying that you made the 1031 exchange property your primary residence? If so, can you explain the circumstances that made this doable? Thanks in advance.
Julie Sanchez at the time I did this I only had to rent it for 12 months.
@@CoachDomCostabut isn't it bad to make the home you live in an asset ?
The Spaniard gotta sleep somewhere-lotsa this space creates $s😃😜
Ok. Can I as an individual without a realtor license qualify for 1031 exchange? How much money do I need put in? I’m looking for additional ways to increase the income. Any help is appreciated.
Thanks for this! Do I need to invest as an individual or LLC to take advantage of the 1031 Exchange, or does it matter ?
Branden you are very entertaining and speak to be understood! This was a great refresher course and appreciate you throwing it out there! Great way to build wealth!
very informative - thanks! Now I just need to figure out how to start...
Starting a 1031 exchange can seem overwhelming at first, but it's a relatively straightforward process once you understand the steps involved. Here are the general steps you can take to start your 1031 exchange:
1. Identify your property: The first step is to identify the property you want to sell and the property you want to acquire. Both properties must be identified within 45 days of the sale of the first property.
2. Hire a qualified intermediary: You will need to hire a qualified intermediary (QI) to handle the exchange process. The QI will act as an intermediary between you and the buyer/seller of the properties, and will also hold the proceeds from the sale of the first property until they are used to purchase the new property.
3. Close on the sale of the first property: Once you have identified your properties and hired a QI, you can proceed with the sale of the first property. The proceeds from the sale will be held by the QI until they are used to purchase the new property.
4. Identify the replacement property: Within the 45-day identification period, you must identify the replacement property you wish to acquire. Once identified, the QI will provide written documentation of the identification to you.
5. Close on the purchase of the replacement property: Once the replacement property has been identified, you have 180 days from the sale of the first property to close on the purchase of the replacement property.
6. Complete the exchange: Once you have closed on the purchase of the replacement property, the exchange is complete. The QI will then release the proceeds from the sale of the first property to the seller of the replacement property.
It's important to keep in mind that the 1031 exchange process can be complex and time-sensitive, and it's essential to work with a qualified intermediary who can guide you through the process. It's also important to consult with a tax advisor or attorney to ensure that you comply with all the rules and regulations and to ensure that a 1031 exchange is the right choice for you.
@@rishabrege3479 these are the answers that we are looking for!
@@landon2859 happy to help brother!
Thanks for keeping it "Plain & Simple" - Love your exit music!
been watching a lot of ben mallah and he utilizes the 1031 non stop. thanks for explanation. My question is with the "always buy a more expensive property than you sold". Ben does buy expensive real estate but unless you can have multiple 1031's won't you eventually hit an inevitable cap of property price? Where do you go from a 20 million dollar hotel? 40? 50? 100?
It is true that in a 1031 exchange, the replacement property must be of equal or greater value than the relinquished property in order to defer all of the capital gains taxes. And as you pointed out, there may be a limit to how much property value you can acquire through 1031 exchanges, especially if you are only able to complete one exchange at a time.
However, it is not necessarily the case that an investor must always acquire more expensive properties in order to be successful. The value of the property is not the only factor to consider when making an investment decision. An investor may also look at the property’s cash flow, potential for appreciation, and the investor’s overall investment strategy.
Furthermore, there are other structures and options available to investors that allows to exchange properties of different value like Reverse 1031 exchange, Delayed 1031 exchange, Improvement exchange etc.
It is important for investors to carefully evaluate all options and consider their own investment goals and strategies before making a decision. Consulting a tax professional and a real estate expert can also be helpful in making informed decisions.
@@rishabrege3479 ty for the explanation
@Ken Sherman you are most welcome.
Question.
So do the capital gain taxes accumulate with every property you trade? Or do you only pay taxes on the last property you trade and liquidate?
curious about this too. I believe you only pay taxes for the "last" property
Under a 1031 exchange, you do not have to pay capital gains taxes on the sale of the property you are exchanging, as long as you use the proceeds to acquire a "like-kind" property. The taxes on the gain from the sale of the first property are deferred until you sell the replacement property and do not liquidate it or exchange again.
It's important to note that the key to a successful 1031 exchange is to not take any "boot" or cash out from the sale of the first property. If you take cash or cash equivalents out of the transaction, you will be required to pay taxes on that amount.
It's also worth noting that the IRS has strict rules for 1031 exchanges, and it's important to consult with a tax advisor or attorney to ensure that you comply with all the rules and regulations. In addition, the IRS has a rule called the "related party rule" that prohibits related parties from conducting a 1031 exchange, and the "hold period" requirement which states that you must hold the property for a certain period of time before selling it, to qualify for tax-deferred treatment.
It's important to keep in mind that the 1031 exchange is a complex process and it's best to work with a qualified intermediary, tax advisor, and attorney to ensure that you comply with all the rules and regulations and to ensure that a 1031 exchange is the right choice for you.
@@rishabrege3479 this was helpful!
Thank you!
@@stoicamv You are most welcome!
Can you 1031 into 2 separate properties instead of one replacement property that’s worth more?
I sell my Single Family Rental (Investment Property in Texas) and buy another investment property in Orlando (Equal or greater in value) this is a like kind 1031 Exchange. In doing so, I avoid paying Capital Gains Tax. How soon can I move into the Orlando Property and make it my Primary residence?? ... NOTE: Selling an Investment Property to buy a Primary Residence DOES NOT qualify as a 1031 Exchange and Capital Gains will be due. Filing taxes as a 1031 Exchange after the purchase of the second Investment property then moving in now makes it my Primary Residence. Would the IRS have anything to say about that?
"safe" practice is to wait a year so it is claimed on two tax returns as investment property. Talk with a QI.
Thank you, my CPA just told me I should look into a 1031 Exchange and I had no idea what is was. Your video made it clear, thank you.
Hey thanks for the video. Well put together, I really appreciate it. I heard you say you need to invest in a more expensive property, does it need to be another income property or commercial property?
Brandon, what reputable 1031 exchange company will you suggest? I am trying to avoid being defrauded by all of these shady companies out there. Thank you!
There are a number of reputable 1031 exchange companies that can assist you with your exchange. Some of the companies that have a good reputation in the industry include:
1. Accruit: A national qualified intermediary (QI) company that provides 1031 exchange services. They have a reputation for providing excellent customer service and have been in business for more than 20 years.
2. IPX1031: A national qualified intermediary company that specializes in 1031 exchanges. They have a reputation for providing expert guidance and personalized service.
3. Sterling 1031 Exchange: A national qualified intermediary that provides 1031 exchange services. They have a reputation for providing excellent customer service and have been in business for more than 20 years.
4. 1031 Exchange Place: A national qualified intermediary company that specializes in 1031 exchanges. They have a reputation for providing expert guidance and personalized service.
It's important to note that these are just a few examples of reputable companies, and it's always best to do your own research and due diligence when choosing a 1031 exchange company. It's always a good idea to get referrals from other investors, as well as check the company's Better Business Bureau rating, and look for any complaint or lawsuit filed against them.
It's also worth noting that it's important to understand that there is a risk of fraud in any financial transaction, including 1031 exchanges, and it's important to take appropriate precautions to protect yourself. Consult with a tax advisor or attorney before making any decisions or taking any actions related to a 1031 exchange.
What if the parents want to do a 1031 exchange and invest on a property that the children will live in. What are the stipulations and requirements based on the percentage of owned property for both parties in regards to cost of FMR, property taxes and insurance. Can the parents ever transfer that property to the childeren(before they pass away) without the children having to pay the capitol gains tax?
If parents want to do a 1031 exchange and invest in a property that their children will live in, there are certain stipulations and requirements that must be met in order to qualify for a tax-deferred exchange.
First, the parents must own the property that is being sold, and the replacement property must be held in the same ownership as the property that is being sold.
In terms of cost of fair market rent, property taxes, and insurance, the parents will be responsible for paying these costs as long as they are the legal owners of the property. If the parents wish to transfer the property to their children before they pass away, they can do so through a process called a "gift." However, if the parents transfer the property to the children while they are still alive, the children will be responsible for paying any capital gains taxes that are owed on the property at the time of the transfer.
It's important to note that gifting a property may have other tax implications, such as gift taxes. Also, the parents should consult with a legal and tax professional to understand the implications of gifting the property, and to ensure compliance with all applicable laws and regulations.
Additionally, there are certain strategies that can be used to minimize or eliminate the capital gains tax when transferring property to children, such as a Qualified Personal Residence Trust (QPRT) or a Family Limited Partnership (FLP). These strategies are complex and require the guidance of a legal and tax professional.
Question: What happens to the loan on the original property? Does it stay with you or shift to the new owner?
In a 1031 exchange, also known as a like-kind exchange, the loan on the original property typically stays with the original owner and is not transferred to the new owner. The original owner would typically need to obtain financing for the new property in a separate transaction.
@@rishabrege3479 Got it. Thanks 👍🏻
@@sbtopjosh4098 👍
Very Informative & Well Explained.
Thank You.
Kadeers!!!
Hello thanks for the videos, is possible to use 1031 exchange for a vacation home rental outside of the United States?
What if the place you’re buying is slightly less but you put the balance into the new place for upgrades?
In a 1031 exchange, the property you acquire must be of equal or greater value than the property you are selling. The difference in value, known as "boot," is subject to capital gains tax. If the place you are buying is slightly less in value than the property you are selling, you can use cash or other assets to "boot up" the value of the new property. However, any cash or assets used in this way would be subject to capital gains tax.
Regarding upgrading the new property with the balance, it's important to note that the IRS has strict rules about what constitutes a "like-kind" property. Improvements or upgrades made to a property do not qualify as like-kind, only the underlying land and property itself. Using the proceeds from the sale to make upgrades to the new property would be considered as "boot" and subject to capital gains tax.
It's always best to consult a tax advisor or attorney before making any decisions or taking any actions related to a 1031 exchange. They will be able to advise you on the best way to structure the exchange to minimize tax implications.
What if you want to simply exchange a rental property for another one of like or higher value?
Is a 1031 exchange the proper way to do that?
Can i use a 1031 exchange and turn it into my primary residence? How long do i have to wait for me to do that?
If the extra hassle is worth it to you it’s possible to. Believe it’s called the 121 rule if that still works and laws haven’t changed on it.
The key requirement of a 1031 exchange is that the properties being exchanged must be “like-kind.” This means that the properties must be used for the same type of investment or business purpose. For example, a rental property can be exchanged for another rental property, but not for a personal residence.
Could you buy land using this rule if the land purchased is more than the property
It so hard for me to wrap my head around carry a massive balance with the IRS.
Hope you appreciate my first comment. You are the best !
Can you pay off your primary property mortgage with the money from the sale of your rental property to avoid "capital gains"
So you cant use a 1031 exchange on houses? Like.. buying a vacant lot building a house from the ground up and selling it for profit then use a 1031 exchange to buy another property?
You said this only applies to rental properties? As a flip why could I not do a 1031 to buy a larger more expensive property with a larger spread? Instead of selling paying cap gains tax and turning around anyways just to find my next flip property????
yeah but what do you do when you have a 1031 exchange borrower and the trust is irrevocable because the grantor of the original revocable trust has died and the beneficiary has to close in the 1031 exchange entity and not in her personal name/social and lenders won't allow you to close in irrevocable trusts? My client is dealing with this now and she doesn't want to close in her personal name and deed the property to the trust post closing because she feels like she will be hit with cap gains tax. She is the Trustee of this now irrevocable trust. any guidance would be truly appreciated.
Can we buy a rental first since the deal is so appealing while we are trying to get the other rental listed and sold?
So, I purchased a house and renovated it and I'm selling it. Can I take the purchase price from that home and purchase another property to do STR (short term rental)? Also, you. mention the property will have to be more in cost than the one I'm selling?
Can I use the sell of the rental property to buy my next home, that I will be living in?
What is the risk of buying from a 1031 seller
Is there a way to only invest half of the profit from the sell into the 1031 and pocket the other half?
If so, what’s the percentage required
The IRS requires that in order to qualify for a tax-deferred exchange under Section 1031, you must reinvest all of the proceeds from the sale of the first property into the replacement property. If you take any cash or cash equivalents (referred to as "boot") out of the transaction, you will be required to pay taxes on that amount.
There is no specific percentage requirement for how much of the proceeds from the sale of the first property must be reinvested into the replacement property. The IRS simply requires that all proceeds from the sale be reinvested.
However, there are some strategies that allow you to access some of the equity from the sale of the property while still qualifying for a 1031 exchange. For example, you could use a "Starker" exchange, also known as a delayed exchange, which allows you to temporarily hold the proceeds from the sale of the first property in a qualified intermediary's account while you identify and acquire a replacement property. During this time, you may be able to access a portion of the proceeds, but it will be subject to taxes and penalties.
It's important to note that these strategies can be complex and have many rules that you must follow. It's recommended to work with a qualified intermediary and a tax advisor to ensure that you are in compliance with all the rules and regulations and to ensure that you are making the most of your investment.
So what if I want to buy vacant land and build my home to live in not to sell. But what 20 years down the road I will not be able to sell??
Im new to 1031 exchange. Can you sell a rental and use part of the equity on the 1031 exchange and pay off debt with the rest. I will be getting another investment property loan using the 1031 for down payment and closing cost.
Now can I pay off my primary property mortgage with rental property capital gain?
Ok so my question is if I 1031 exchange a property into a second property, when I decide to sell that second property and not do another 1031, will I have to pay capital gains tax from the FIRST property AND the second one...or just the 2nd one?
When you sell a property that you acquired through a 1031 exchange, you will be required to pay capital gains taxes on the appreciation of the property that occurred after the exchange. This is known as the "built-in gain."
The built-in gain is the difference between the fair market value of the property at the time of the exchange and your adjusted basis (usually purchase price plus any capital improvements) in the property. So if you bought a property for $100,000 and exchanged into a property worth $200,000 then your built-in gain would be $100,000.
If you decide to sell the second property and not do another 1031 exchange, you will be required to pay capital gains taxes on the built-in gain from the second property and any additional appreciation that occurred after the exchange. This means that you would not be paying capital gains taxes on the first property, just the second one.
It's important to note that the built-in gain is calculated at the time of the exchange, and any depreciation taken on the property prior to the exchange will be recaptured and taxed as ordinary income at the time of sale. Additionally, you will also be subject to state taxes on the sale of the property.
As always, it's important to consult with a tax advisor and a qualified intermediary to ensure that you are complying with all the rules and regulations and to ensure that you are making the most of your investment.
Is this applicable to selling/buying a BUSINESS?
Great breakdown of 1031's! Look into 1031 exchange into Opportunity Zones to enjoy a "Supersonic Roth IRA" like tax deferral & future tax avoidance!
Great video. Very informative. Let me throw wrinkle in this. So a rental property burned down. The insurance payed out damages and I'm selling the burned structure next month. When does the 45 day timer start? At the insurance payout OR the sale date? What is the tax rate on the sale if I don't 1031? 17% capital gains? My regular 24% tax rate?
The 45-day timer for identifying potential replacement properties in a 1031 exchange starts on the date of the sale of the relinquished property, in this case, the date of the sale of the burned structure.
If you do not complete a 1031 exchange, the tax rate on the sale of the burned property will depend on your income tax bracket. The capital gains tax rate for individuals in the 24% bracket is generally 15%, and the long-term capital gains tax rate for individuals in the highest tax bracket is 20%. However, the actual tax rate could be different depending on your specific situation and other factors such as state taxes. It is always recommended to consult a tax professional for accurate and specific advice regarding your situation.
So you’re telling me that I can refinance my home, take that cash, put it on my pocket, then turn around and sell my home and use a 1031 exchange to buy a bigger home and not pay any taxes on the refinance or the sell!?
Does this apply to a property that you have been awarded via probate?
If my uncle calls me champ, I'm throwing bows
I guess I would like to ask is can't you line everything up before you make the transaction on the first property I guess theoretically what I'm saying is if you know what property you want to get you know what you want to do with it after you look at it you don't have to agree to buy it that day you know you can look at it and see what you have to do to it or whatever and you go out and find the other property that you want to basically take your earnings from the first property and invest in so if you do that won't be better than literally doing the transaction on the first property and you have this time line that starts and you have to finish before the timeline is ended like wouldn't that be better I don't know if that makes sense and is that possible to do have your ducks in a row before you even throw the money for the first property you already have the second property already lined up and in mind of what you want to do or two or three properties lined up in mine from the first property before you make the transaction? Is this possible
Yes, it is possible to have your ducks in a row before making the transaction on the first property in a 1031 exchange. This strategy is known as a "reverse exchange" or "park and swap." In a reverse exchange, the investor identifies and acquires the replacement property before disposing of the relinquished property. This allows the investor to have control over the replacement property while they continue to search for a buyer for the relinquished property. It is important to note that there are specific rules and guidelines that must be followed when using a reverse exchange, and it is recommended to work with a qualified intermediary or attorney to ensure compliance with IRS regulations.
Good example...makes easy to understand 🥺✌🏻
Can I purchase a rental property when I sell vacant land?
Can someone help i didn't know this rule so basically on my first flip i made 40k profits then used that money on another flip withing a week without using 1031 can i still fix it with a good accountant??
Can you use only a portion of the income as an exchange. If you make 100k off your sale can keep half and pay capital gains and exchange the other half?
Yes, it is possible to use only a portion of the proceeds from a sale in a 1031 exchange. This is known as a "partial exchange." However, there are certain rules that must be followed in order to qualify for the tax deferral benefits of a 1031 exchange. One of the rules is that the entire proceeds from the sale of the relinquished property must be used to acquire the replacement property. Additionally, the replacement property must be of equal or greater value than the relinquished property.
It's important to check with your tax advisor and make sure you follow the IRS rules for a 1031 exchange.
Do u have to use a 3rd party to hold funds in a 1031? Or can it be deposited into ur account
1031 is defer tax, Will you have to pay tax at some point.
Yes and no. Theoretically, you can avoid taxes for life if you never sell the property (he mentions this at 3:15 or so). What he doesn't mention is that your estate could be potentially pay the inheritance tax (talk to a CPA regarding your specific situation).
Very good info, thanks!
thanks for the video...well explained. very helpful
Great advise 👌🏼👌🏼👌🏼📈📈📈
Can someone explain what is 1031 exchange
My hero
Is this of any concern to a buyer looking to get the house?
If I have say 10 properties, can I do it for each one?
It can not be a house? Only multi units. Could it be a rental property?
Alguien sabe si esto se puede hacer en Costa Rica??
Hi! Thank you for encouraging me to look into this. I am planning to go through my very first 1031 by selling my investment property next month. I am afraid I may not find a renter for the new investment property with the virus situation. Can I move in the property after a certain time if this happens? 1) If yes, then what is this time frame. OR 2) I just need to keep reducing rent even if I am not able to cover my mortgage payment with the rent. Your answer helps me make one of the big decisions of my life. Thank you!
1. In order to qualify for a 1031 exchange, you must follow the “like-kind” and “holding period” rules. The like-kind rule requires that the property you acquire in the exchange be similar or of the same nature as the property you are selling. The holding period rule requires that you hold the property for investment or business use, and not for personal use.
If you move into the property after the exchange, it may be considered personal use and would disqualify you from the 1031 exchange. However, the IRS has provided a safe harbor for rental property held for at least 24 months before it is converted to personal use, it will not be considered as disqualified for 1031 exchange.
2. It is not advisable to move into the property and cover mortgage payments with rent, as it may qualify you from the 1031 exchange. If you are facing a difficult time renting the property, it is best to consult a tax advisor to discuss your options.
Can I use the profit from the first property after the closing of the second property?
In order to qualify for a tax-deferred exchange under Section 1031 of the Internal Revenue Code, you must use the proceeds from the sale of the first property to acquire a replacement property. If you take any cash or cash equivalents (referred to as "boot") out of the transaction, you will be required to pay taxes on that amount.
This means that if you take any profit from the sale of the first property before the closing of the second property, it would be considered as "boot" and you would be required to pay taxes on that amount.
Additionally, you have a strict time frame for identifying and acquiring a replacement property after the sale of the first property, usually 45 days to identify and 180 days to close the replacement property.
It's important to work with a qualified intermediary and a tax advisor to ensure that you are in compliance with all the rules and regulations and to ensure that you are making the most of your investment.
Couldn't you find some grace with the 45 days by looking for those great deals before you ever decide to use the 1031? Like say you know that 1031 is coming up soon, couldn't you get a running start looking for deals before the 1031 45 days goes active?
yes
Why didn’t you talk about the dangers? The Qualified Intermediary holding your taxes can rob you or go outta business and you get screwed hard
WOW 😳
Question? That work to buy in another state?
yes
Great video, thanks for sharing that bit of knowledge
Ok. Can I as an individual without a realtor license qualify for 1031 exchange? How much money do I need put in? I’m looking for additional ways to increase the income. Any help is appreciated.
As an individual, you can qualify for a 1031 exchange without a realtor license. There is no specific requirement for a realtor license to participate in a 1031 exchange.
In terms of the amount of money you need to put in, there is no minimum or maximum amount required for a 1031 exchange. The key requirement is that the property you acquire in the exchange must be of equal or greater value than the property you are selling. The difference in value, known as "boot," is subject to capital gains tax. In addition to the equal or greater value requirement, you must also comply with the "like-kind" and "holding period" rules as well as the time frame for the exchange.
1031 exchange can be a great way to defer paying taxes on the sale of a property, and it can also be used as a strategy to increase income by acquiring property with higher rental income or appreciation potential. However, as with any financial decision, it's important to consult with a tax advisor or attorney to make sure that a 1031 exchange is the right choice for you and that you comply with all the rules and regulations.
So in a 1031 exchange do we have to use all the money for example if you sell a property for $115k and buy a property for $110k after fixing it up you would have 5k what would happen to that $5k?
U pay tax on the 5k
Can you use it when you refinance your house??
How do you make profit if you have to use all the money from the sale in a new property ?
In a 1031 exchange, you can defer paying capital gains taxes on the sale of a property by using the proceeds from that sale to acquire a "like-kind" replacement property. The key to making a profit in this scenario is that the replacement property must be of equal or greater value than the relinquished property.
If the replacement property is of greater value, the difference between the two properties represents the potential for profit. For example, if you sell a property for $100,000 and use the proceeds to acquire a replacement property for $150,000, you have made a $50,000 profit, which is not subject to capital gains taxes until you sell the replacement property.
Additionally, the replacement property usually should generate cash flow or have a potential for appreciation in the future.
It's advisable to consult with a tax advisor and real estate professional to make sure you understand the rules and benefits of a 1031 exchange, as well as the potential risks and downsides.
Super Informative ! Thanks for sharing!
What if my grandpa sold a home to me for $1 and transferred it into my name? This was done in 2014. It was my primary residence 2 out of the last 5 years...can I do a 1031 or am I stuck paying capital gains (minus $250 deduction.) ?
The 1031 exchange is for investment property not personal residence. Its meant to be a exchange of investment property (though not necessarily just rental property) for other investment property.
Question Brandon, this is a great video. I'm new to the real estate Investing. I just got the burrr book. If you are using the brrr method can you avoid the 1031 exchange?
Can you avoid it? Sure. Just cash out of any sales you do and pay your taxes as normal. But do you really want to? You’d have to pay cap gains taxes.
Can you move into a 1031 home after some time?
That was perfect. Many thanks!
What if it is your principle property?
So why wouldn't it work with home flippers?
Thank you so much for your helpful video!
What if I've remodeled a property, but never rented it out?
New subscriber here. Thank you for breaking this down so well.
Very informative! Thanks!
Wait...What?Why wouldn't this be applicable to house flippers again?It makes perfect sense for this to be available to flippers also so what is the issue the IRS have with flippers?
He mispoke in the video I'm pretty sure. The reason it does not apply to flippers is that the selling of property for monetary gain and then finding another property to invest said monetary gains is a taxable event. Has to be an EXCHANGE of this for that to work within the allotted timeframes AND has to be well described as such before you do anything.
Flippers are considered 'self employed' and the gains are taxed as income,and self employment taxes paid.
Landlords fall under real estate investors, with depreciation and annual write offs, and are taxed less than flippers. It is long term, therefore, there are more opportunities and tax breaks.
I had the same question, my accountant explained it
love the explanation
Thank you!
any affect or problem for the buyer of a 1031 seller ?
A 1031 exchange can have some potential effects or problems for the buyer of a property that was sold through a 1031 exchange. One potential issue is that the property may be overpriced, as the seller may be looking to recoup the costs of their own 1031 exchange. Additionally, the property may have deferred maintenance or other issues that were not addressed by the seller, as they were focused on completing the 1031 exchange. The buyer may also have to wait a longer period of time to close the sale, as the 1031 exchange process can add additional time to the transaction. Additionally, the buyer may need to be aware of the replacement property rules and regulations that the seller must follow when completing a 1031 exchange, as it could affect the property ownership rights of the buyer.
great video thank you for clarifying
Great explanation! Thank you!
Good breakdown
Is the process pretty easy or do you need a CPA or company to help you with that?
The 1031 exchange process can be complex and time-sensitive, and it's important to comply with all the rules and regulations set forth by the IRS. While it's technically possible to complete a 1031 exchange on your own, it's often best to work with a qualified intermediary (QI), a tax advisor, or an attorney to ensure that the process goes smoothly and that you are in compliance with all the rules and regulations.
A Qualified Intermediary is a neutral third party that facilitates the exchange process by holding the proceeds from the sale of the first property in escrow until they are used to purchase the replacement property. They will also provide written documentation of the identification of the replacement property to you.
A CPA or Tax advisor can provide guidance on the tax implications of the exchange, and can help you plan for the future to make the most of your investment. An attorney can help with the legal aspects of the transaction and ensure that all the paperwork is in order.
It's also worth noting that there are several reputable 1031 exchange companies that specialize in facilitating 1031 exchanges and can provide a range of services to make the process as easy as possible. These companies can help with everything from identifying and qualifying replacement properties, to handling the paperwork and closing the transaction.
In any case, it's important to do your research and choose a qualified professional with experience in 1031 exchanges to help guide you through the process. This way you can ensure that you are in compliance with all the rules and regulations, and that you are making the most of your investment.
Let’s
Go Brandon!!!!!
Literally
Great video!
Great video
Can you exchange it into REI