Hi,
I am new here. I have been looking into new investment opportunities. I really like the tax benefits of 1031 exchanges but I need to do some more reading / research to see what kind of return I will be looking at.
Does anyone have any recommendations on where I can read more about 1031's?
Matt
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There are lots of resources online - IRS website, Investopedia, etc.
IPX1031 Exchange is the largest Qualified Intermediary in the country, and there's lots of good information on their site.
A real quick and dirty overview:
contract / sell an existing property that has a capital gain (called the relinquished property)
engage a Qualified Intermediary to facilitate the exchange
within 45 days of closing the relinquished property, identify up to 3 replacement properties
within 180 days, close the replacement property(s)
There are lots of other details to be aware of, so make sure to work with experienced brokers, CPAs, Qualified Intermediaries, and/or attorneys to make sure the tax deferral is executed properly.
Applicable to all asset classes? Single family flipping, MF, hotels, office, etc.
Used a lot in O&G land transactions
Should have also asked what the downsides are. For example, if you keep revolving through properties with a 1031, at what point do the tax implications upon sale become a nightmare?
Let's say you wanted to liquidate half your portfolio at one point in time after a couple of 1031 exchanges...what does the deferred tax bill look like? A lump sum? A cost-basis approach like stocks?
I would imagine that when you liquidate, it's based on the basis of the asset you're selling.
Note - A shrewd investor who is willing to pass on the assets to his descendants would hold the 1031 assets until death, at which point they pass on to his or her children. At that point, the basis steps up to market value at time of death and wiping out both capital gains and depreciation recapture. (Note - this is what a lot of old money real estate families due and just collect the income.)
Why the MS on this post...
Anyone know what costs are associated with the Qualified Intermediary?
Just checked closing statement on a couple 1031s we completed it was negligible, $750 on the sell leg, I think sometimes you pay on the buy leg, but we did not, possible because they're owned by our title company the fees were all rolled into one.
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