REAL ESTATE NEWS (Los Angeles, CA) — California investors often find themselves owing hundreds of thousands of dollars when they sell an investment property. Investors want to avoid paying big taxes, which can often total 33%, when they sell a property to buy another property. A 1031 Exchange is therefore quite possibly the best investment wealth building tactic for real estate investors today, because the IRS Internal Revenue Code section 1031 rule allows those taxes to be deferred.
While the rules say that they must be of “like-kind” properties, they don’t actually need to be the exact same kind of property. There’s plenty of flexibility. 1031 Exchange works for different types of properties, so long as they are in the United States, and the property is a long-term holding investment, not quick-flip inventory. Two single family homes can be sold to buy one large loft condominium, or even to purchase just a fraction of a large group investment. The purchased property must be worth at least at much as the sold investment. For maximum tax benefits and reduced change of IRS audit, the owner should hold the property for at least two years. It’s ok to have rental tenants during that time, and it’s also ok to use the property for personal use for up to 10% of the time.
The investor must spend all of the cash from the property sale, towards the down payment to buy a property of equal or greater value. Within 45 days of filing initial paperwork for the 1038 exchange, the investor must submit a list of all of the properties that are under consideration for purchase. The investor may choose to specify three properties, or the investor may specify as many properties that total less than $2 million or 200% of the value of the sold property. The investor must complete the exchange and close on the replacement property within 180 days.
The IRS requires investors to use an exchange accommodator, a third party that takes an active role in the transactions that turn a sale and purchase into an exchange. The intermediary facilitates the transaction, acts as a legal straw buyer, provides consultation, does the paperwork and ensure IRS compliance.
How a Landlord can Retire: The DST
How to retire from being a landlord: When a landlord has had enough of managing properties, they can reduce their workload to more of a passive income by using a 1031 Exchange to buy into a DST
. This is ideal for investors who want zero responsibility for the selection and management of property. These DSTs are commonly diversified by split into different baskets, such as: apartments, self-storage buildings, Amazon distribution centers and medical offices.
Get a free list of 1031 exchange accommodators, agents, lenders or DSTs. Fill out the online form:
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Copyright © This free information provided courtesy L.A. Loft Blog with information provided by Corey Chambers, Reali, Inc DRE 01889449. This is not an offer to buy or sell securities. All investments involve risk, including possible loss of principal. All information provided is deemed reliable but is not guaranteed and should be independently verified. This does not constitute financial advice. For financial advice, consult a certified financial advisor, tax adviser, CPA and 1031 exchange accommodator. We are not associated with the seller, homeowner’s association or developer. For more information, contact 213-880-9910 or visit LALoftBlog.com Licensed in California. Properties subject to prior sale or rental. This is not a solicitation if buyer or seller is already under contract with another broker.