Turning a Personal Residence into a 1031 exchange, Part 2

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.

Turning a Personal Residence into a 1031 exchange, Part 2

You’d be surprised how well this works: when you rent out your personal residence for a couple of years, a 1031 exchange deal can greatly lower your tax burden! Consider this:

Suppose a couple buys a home in 1979 for $125,000. They put about the same amount into capital improvements – added a pool, better appliances, a sun room, etc. Twenty five years later, they rent the home out for 2 years. After that, the sale of the property, eligible for a 1031 exchange, gets them a lot of excluded cash from full local and federal capital gains tax!

This is the sort of strategy that can help property owners to avoid leaving money on the table when it’s time to offload a valuable estate or home.

Question 1:
I would like to do a 1031 exchange with my home - set up a lease/option for 2 years to qualify. I would like to discuss/interview with local real estate and accomidator folks that have done this in Southern California. Home in La Canada has a value of $1,000,000 + and paid off..

Answer:
Congratulations! Your plan adheres to IRS Rev Proc 2005-14. You’re in good shape!

About Marilee: Role of Marilee Hill, Registered Representative (RR)

Over the years, Marilee Hill has been a property owner, a property manager and a FINRA-certified real estate broker – now she helps clients to understand the ins and outs of a 1031 exchange and everything that goes along with these deals. Hill enjoys helping others to find a good starting point on their way to maximizing their investment income and complying with “the rules of the game” according to the IRS and related regulators. While she doesn’t work as a QA, Hill does apply her years of experience in real estate to consulting property owners on what’s best for their real estate plans. Real estate deals can be rocky and hard to navigate – Hill understands the rules and the value of dealing directly with people!

Let her help with a plan to work a 1031 exchange through the allowed process correctly.

Turning a 1031 Exchange into a Private Residence, Part 2

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.

Turning a 1031 Exchange into a Private Residence, Part 2

When it comes to a successful 1031 exhange, sometimes patience works in your favor.

If you can handle deferred gratification, you can use a retirement gambit to make an exchange that will alleviate some of your tax burden and add to your long-term gains.

When you’re thinking of retiring, you can work ahead to sell your investment property and use the proceeds for a 1031 exchange into your future retirement location. Rent out the exchange house for a minimum of two years, and voila, you can move into the exchanged property and claim it as your primary residence. You can sell your long term primary residence and take out your adjusted gross base, plus a $250,000 exclusion per person on the deed, shielding those amounts from taxation. For a savvy property owner, this can be a big windfall.

Question 1:
Hi,\nI am doing 1031 exchange for a reason to convert income property into prime residence.\nDo I have to rent out for some time (1 year, 2years?) new property before I move in and make it prime residence?\nAlso can you give me any link to legal publication on this matter.\nThank you,\nAnatoli S.

Answer:
You must rent the house out for two years. As intent is so important to the IRS in 1031 exchanges, that rental period is key. Take a look at excepted custom supported by IRS Revenue Procedure, 2005-14, which helps determine safe practices.

Question 2:
Hi we Just moved into one of our rental homes which we bought in 2004 as a 1031 exchange. Our intent is to live in it for two years, sell as our primary residence to take advantage of the capital gains savings. Has this law changed?

Answer:
You get an “A”!; you have the steps correctly stated, and the law has not changed. Also, each of you will be able to utilize a $250,000 exclusion from taxes.

About Marilee: Role of Marilee Hill, Registered Representative (RR)

Marilee Hill has extensive experience in 1031 exchanges and real estate deals in general.As a broker who has managed her own properties, Hill now offers services and advice to clients to help them to achieve their goals.

Part of what has made Hill so successful, along with FINRA certification and other background, is her assertion that a lot of the real estate process is fundamentally about people. Hill says that “my clients’ success is my success” and this has served her well in helping others to complete real estate deals in a satisfactory way.

Get help from Marilee Hill to achieve a successful 1031 exchange and get more out of your real estate transactions.

Timing, Part 2

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.

Timing, Part 2

A successful 1031 exchange requires quite a lot of learning and planning. There’s a mandatory prerequisite 45 day identification period and additional 135 day settlement time with the clock starting to tick the day you relinquish your property. These are just some of the hard and fast rules that parties must follow to stay on the good side of the IRS.

The timelines are inscribed in granite — and then after the horrific events of 9/11, the IRS issued a nationwide exception extending the 45 day identification rule and the settlement deadline for the entire United States. Since then, the IRS has expanded its exceptions for major natural disasters. Don’t dawdle.

Even with keeping track of compliance with mandatory timelines, the good news is you can write a contract any time before settlement for your replacement property. Sponsors have to consider timing issues for replacement property settlements. So get in line quickly.

Looking for guidance on when to file your tax return for your sale property, or advice on complex property deals? A 1031 exchange often involves more than one stakeholder as it moves toward completion, so having the right partners in your corner is a big plus.

Question 1:
Can I buy the new property before I sell and close on the (old) exchange property.

Answer:

Yes, you can – this kind of deal is called a reverse exchange; it’s complicated, and fees start at around $5,000. You’ll need a Qualified Intermediary who Is also an EAT to accomplish the reverse exchange.

Question 2:
Advise timing to complete a 1031 agreement

Answer:
Planning is of utmost importance for a successful 1031 exchange, and a Qualified Intermediary agreement is essential . The QI agreement is a standard that helps to legitimize a deal. The best time to hire a QI is when you have a valid contract for the property you are selling.

About Marilee: Role of Marilee Hill, Registered Representative (RR)

Marilee Hill has a good deal of experience in facilitating successful 1031 deals. As a broker licensed in multiple states, Hill has presided over a high volume of property exchanges and other real estate transactions, with a track record of establishing a high rate of success for clients.

As a broker with general securities (Series 7) license from FINRA and other key credentials and a background in real estate, Hill can help to bring clients through complex and sophisticated deals, such as deals involving more than one parcel, or TICs, or advanced real estate trading situations.

Ask Marilee Hill about what you can do with a 1031 exchange in today’s market.

Role of Marilee Hill, Registered Representative

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.

Role of Marilee Hill, Registered Representative

Since 1999, Marilee Hill has been working with clients to help them understand 1031 exchange practices and the context in which these real estate deals qualify and conclude successfully. Banking on her experience with sales and leasing, Hill helps those who want to pursue these deals to develop a better picture of how they work.

In her prior role as a broker, Hill learned a lot about what truthfulness and transparency offer in the common real estate deal – and other deals that seem rather unique! When you get involved in any complex real estate deal, you want agents and brokers who can work with people. Ask Marilee Hill for advice on 1031 exchange deals and more.

Ask Marilee Hill about what you can do with a 1031 exchange

Question 1:
Hi Marilee\nI am from San Diego My name is Chit, I am from Mira Mesa interested to sell my condo rental to an investor, using 1031 exchange, Please advise me as to your fees and send me an article that I can start with . \n\n.Maybe it will sell for $325 K , I have a existing loan of $220K. Thank you!..

Answer:
Hi - in order to facilitate one of these deals, you will need a professional qualified intermediary who does not have a conflict of interest. You'll want to go to settlement with a QI who can present papers there.

My role in the process is to help you to find replacement properties for your exchange. These properties are sold on a private placement memorandum (PPM) and regulated by Reg D of the Security Act of 1933. In order to make one of these deals, you must be an accredited investor and have net worth of $1 million or more, and that does not include your primary residence.

Question 2:
we have 2 rental properties we want to sell both and buy one rental in Florida Can you help my wife and I in doing this or recommend someone in our area who can help us.

Answer:
As a registered representative with GSRE series 7, I can help you to find properties in your destination area. However, you'll need someone locally to help you sell your rental properties. You also need a qualified intermediary as mentioned above.

The Role of the QI, Part 2

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.

The Role of the QI

It's important to have a qualified intermediary when you're trying to do any delayed exchange – if you go to settlement and don't have documentation from the QI, the deal goes through and you have you have forfeited the exchange.

So what else is disqualifying? Your qualified intermediary must be without a conflict of interest. This means avoiding using family members, as well as professionals who do other work for you such as your regular lawyer or CPA. Treas. Reg. §1.1031(k)-1(g)(4) iii specifically addresses the QI’s conflict of interest.

Question 1:
Can I complete the exchange myself without a facilitator?\nWhat is the facilitator’s fee?

Answer:
For a delayed 1031 exchange, you must always have a qualified intermediary in every case. The qualified intermediary will charge between $600 and $1000, which is small change when it comes to facilitating this type of deal. It's a good idea to have a qualified intermediary on hand and use this person as a resource going toward a successful 1031 exchange deal.

Question 2:
I am looking for someone who is familiar with 1031 delay exchange to review my exchange documents. Do you provide that kind of service?\nGee

Answer:
Unfortunately, I cannot act in the role of qualified intermediary. You must find a professional to serve as QI, and that person can't have a conflict of interest – he/she cannot be your lawyer or anyone with prior ties to you. I can help you to find replacement properties.

About Marilee: Role of Marilee Hill, Registered Representative (RR)

If you want a real estate professional with a wealth of experience to help you understand more about 1031 exchanges, Marilee Hill has a good deal of experience in this field. After running her own apartments and leasing and managing, Hill moved into a broker role.

Hill understands that a lot of the real estate process is fundamentally about people. Dealing with sponsors and customers and other agents and brokers, Hill always puts other people first. Her motto says it all: “my clients’ success is my success.”

Ask Marilee Hill about what you can do with a 1031 exchange to boost your real estate income.

Exchange Basics, Part 2

 

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.

Exchange Basics, Part 2

Back in the old days, many deals were cash only. But now, 1031 exchanges have become more sophisticated in multiple ways. The real professionals have been involved in the TIC and DST exchange markets. We have clients all over the country, access to the experts with knowledge in esoteric abstract 1031 issues and we are able to make our deals work according to IRS regulations.

One of the central premises for a 1031 exchange is that investors are going to save taxes. Sound simple - when you want to take out a chunk of cash and have a high basis? Think again. Then there is confusion - the sale of your primary residence is Section 121, not 1031, except where you have a rental unit or a rental on your primary residence. Are you doing like kind to like kind? — a pro knows how to check and provide a solid path forward.

A ‘like kind’ property refers to real property including what individual states define as real property such as timber and mineral rights from which you can facilitate 1031 exchanges. Geographically the definition is limiting to U. S. , U.S. Virgins Islands and Guam. If you own a property outside of the U.S. you have to exchange that property with another foreign property — France to Mexico, etc.

Question 1:
I have a single family home in Palmdale, CA which we have been renting since 1988. I want to exchange it with a commercial property in the North Dallas area where I now resides. What is the best way to go about it using this 1031 exchange?

Answer:
1. Hire a Qualified Intermediary
2. Go to settlement with the QI’s papers in hand
3. Use cash and debt on an equal basis
4. Put the money into the new property
5. Add debt or cash to the deal

Question 2:
I have a single house I've rented for 12 years which is paid off. I'm going to sale the house but would like to buy another rental house in another city. I bought this house in 1990. Not sure how a 1031 works.\nThank you, Mary

Answer:
Two United States properties are like kind to each other. Engage a Qualified Intermediary before you go forward with the details of a 1031 exchange deal.

About Marilee: Role of Marilee Hill, Registered Representative (RR)

Although the 1031 exchange is a basic concept, a lot of these deals raise significant questions – whether you want to know about what constitutes a complete exchange, the role of cash versus data, or how you deal with deductible expenses, ask Marilee Hill.

Marilee Hill has the experience to help you with a 1031 exchange. She came into the exchange field in 1999 having already managed her own apartments and learned a lot about with a real estate process.

Please contact Marilee Hill for your next 1031 Exchange strategy.

Like Kind Exchange - Asset Class, Part 2

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.

Like Kind Exchange - Asset Class, Part 2

Many people have a question when they hear about a 1031 exchange for the first time – they're asking about what constitutes a ‘like kind’ property.

A ‘like kind’ property refers to real property including what individual states define as real property such as timber and mineral rights from which you can facilitate 1031 exchanges. Geographically the definition is limiting to U. S. , U.S. Virgins Islands and Guam. If you own a property outside of the U.S. you have to exchange that property with another foreign property — France to Mexico, etc.

Question 1:
Hi! I have a couple questions. I have 2 single family rentals in Denver Colorado. 1) Can I exchange the TWO of them TOGETHER for ONE rental in California (since property there is so much more expensive). 2) can the rental in California be a condo or must it also be a single family residence? Susan

Answer:
In certain cases, you can exchange two properties for one. Various 1031 guidelines apply, but your condo being real property, you may be able to combine the properties to make the deal.

Question 2:
I personally own my doctors office in a coop building (shares) I rent it to my medical corporatiion, I am selling the coop and want to by a condominium apartment for the purpose of renting it. Is this like kind exchange?

Answer:
In New York, these types of deals can often pass as like kind. Look at the specific details of the co-op building’s setup and whether it represents like kind with a condominium apartment.

About Marilee: Role of Marilee Hill, Registered Representative (RR)

Want the best trusted 1031 exchange advice? Call Marilee Hill. She has experience in property management and real estate – understanding all of the alphabet soup involved in the real estate process, such as Delaware Statutory Trusts and other obscure elements of 1031 exchanges.

She also knows that real estate is, at its root, based on people. Let Marilee Hill help you to deal with sponsors and brokers and other stakeholders in a personable and professional manner.

Please contact Marilee Hill for your next 1031 Exchange strategy.