The questions here were received from interested 1031 exchangers visiting my website. I have chosen to leave the questions intact with their ambiguity, shorthand writing and misspellings so as not to act on the assumption as to what when unclear the questioner meant.
There are various reasons for selling a property and exchanging it with a 1031. Maybe the sellers are selling a mature property and diversifying, or evaluating how the longterm goals of multiple owners have changed. Maybe they are intent on increasing cash flow, or doing necessary estate planning, or moving their households to a different location – in any case it helps to know the rules and do a 1031 exchange the right way. Before the IRS rulings in 1992 clarifying “like kind” for all asset classes of real property, (from townhouses to retail centers, and office condominiums to apartment complexes,) only investors absorbing large legal bills or doing very small exchanges could take advantage of the 1031 exchange. The 1992 changes in IRS handling, along with IRS rulings in 2002 blessing the TIC structure and, in 2004, the DST structure, make a wider spectrum of 1031 exchanges viable.
Now, investors can sell and exchange and have all their profits working for them, instead of the taking out 25% tax on depreciation, plus 15% or 20% and 3.8% (from ACA implementation) and capital gains tax. That’s not to mention the bite that state tax can also take out of your yield apple – especially if you are in a state with income tax rates like California. A perfectly done 1031 exchange eliminates the tax burden and maximize profit.
If you own the property under your own personal names and not in a LLC or Partnership, you will be able to 1031 your sale proceeds. If not, you cannot do a 1031. Renting from yourself does not make a difference, because you are using the property for commercial purposes, and not as your primary residence.
So much depends on the exchanger’s perspective; there are as many answers as exchangers. In general, though, a safe transaction is one that you have studied, along with professional guidance, and established clear knowledge on likely outcomes. A 1031 exchange is one of those many areas where “due diligence” is important.
Marilee Hill is a real estate professional who entered into the securitized 1031 exchange field in 1999, already armed with a lot of experience dealing with different kinds of real estate, including rentals and family homes. Marilee has been a real estate broker in multiple jurisdictions. She understands first-hand the human side of the business, and what it really takes to make a deal work. With kind, cheerful professionalism, she is someone you want on your side for a successful 1031 exchange.
Contact Marilee Hill about your next 1031 exchange deal.