1031 Exchange Basics (Part 2 of 2)

Sheltering taxes can be tricky but also beneficial. Finding a CPA with experience in commercial real estate is important to effectively protect yourself. A 1031 exchange is a tool often used to defer taxes and in my first blog post “1031 Exchange Basics”, I talked about the different types of 1031 exchanges. This blog will focus on the general rules of the Internal Revenue Service’s code Section 1031 that taxpayers must meet when identifying a replacement property. 

Three (3) Property Rule – The taxpayer may identify up to three potential replacement properties, without regard to their value.

200% Rule – Any number of properties may be identified, but their total value cannot exceed twice the value of the relinquished property.

95% Rule – The taxpayer may identify as many properties as he wants, but before the end of the exchange period, the taxpayer must acquire properties with an aggregate fair market value equal to at least 95% of the aggregate fair market value of all the identified properties.

When selecting a replacement property, the funds from a 1031 exchange cannot be used for a personal residence (unless it has been a rental property for 2 years), notes, an interest in a partnership, Certificates of Trust, or homes held for sale by speculation builders (among others).

Knowing the rules & regulations, using a Qualified Intermediary, and having the necessary professional help can secure the tax shelter and benefits of a 1031 exchange. 

For more information or an exchange checklist call Kurt Egan at 608-752-6325 Ext. 4.

1031 Exchange Basics (Part 1 of 2)

The 1031 exchange is a popular tool used to defer capital gain taxes (or losses) for business and investment real estate transactions. It is derived from the Internal Revenue Service’s code Section 1031 and gives investors the opportunity to earn a rate of return on funds that would otherwise be paid to the IRS.

It is also great for portfolio adjustments: diversify, expand, risk averse, down size, location selection, etc. These details can be very important and help with major investor and business owner decisions. To start off, we will go over the types of 1031 exchanges:

The Next Big Thing in Real Estate?

Up until now, investing in real estate has been seen as an option only for the wealthy. But things may change soon with the creation of startups for crowdfunded real estate purchases.

Crowdfunding involves a large group of people on the internet donating a certain amount of money to a project. For example, the website Kickstarter allows filmmakers, designers, and musicians to post a project idea, the funding required, and a deadline for the goal. If people like what they see, they can donate money and will generally in return receive something from the project creator, like a copy of the finished film, album, etc.