INVEST IN RESIDENTIAL INCOME PROPERTY
INVEST IN RESIDENTIAL INCOME PROPERTY
DEFER CAPITAL GAINS TAXES - FOREVER
Most people and accountants (scary, but true!) don't understand 1031 exchanges.
If you are planning to complete a 1031 exchange, BUY THIS BOOK, Exchanging Up,
by Gary Gorman, and read
it, cover to cover.
We NEVER pay Capital Gains taxes when we sell income
property. We exchange "like kind" income property and defer our Cap Gains
to the next property, and this is called a 1031 exchange.
We're always very careful to follow the 1031 exchange rules exactly (we
don't want to get burned!).
Someday, when we're tired of owning and managing income
property, we'll 1031 exchange our income property for REIT's (Real Estate
Investment Trust) and defer the Cap Gains until we die.
You can find LOTS of good information regarding 1031 exchanges on the internet.
www.1031x.com has pretty good rates to be
your "exchange accommodator". If anyone finds better rates, please let me
know!
The basic rules to a 1031 exchange are these:
You must exchange an income producing property for a "like kind" property. You can sell one house and replace it with, say, three houses in another state. You can sell an apartment building and replace it with a house. You can sell a house and exchange it with a REIT. I think you can even exchange your property for a boat or a RV, as long as it's covered under the governments definition of "like kind" (but I wouldn't go there).
You must replace the property that you've sold with property(ies) that costs as much, or more.
You must "identify" the replacement property(ies) within 45 days of closing on the sold property.
You must close on the replacement property(ies) within six months, or by April 15, after closing on the sold property. This makes it hard to replace the sold house with new home builds, because a new home build can take 12 months to build!
The 1031 exchange company must appear on the HUD closing statement as SELLER.
You may not touch any of the proceeds from the sold property. All of the proceeds are wired to the exchange company (or the "accommodator"), and they forward the monies along to your next transaction.
Later on (after the 1031 exchange is complete), you can take money out of your income property. You can refinance it and take out cash.
A WORD OF ADVICE: If you don't have an excellent CPA/Accountant who is familiar and comfortable working with 1031 exchanges, find yourself a new accountant! Even a Real Estate Attorney can be worth her weight in gold. You've GOT to play by the rules, if you want to take advantage of this manna from heaven (or this loophole in the tax laws).
My accountant, Robert Maguire in Lake Forest, California, said, "Terri, there's nothing certain except death and taxes". The government WILL get their cap gains tax in the end -- but by then, I won't mind...
NOTE: You CAN 1031 exchange a Tenant in Common investment (read more on that page).
Where to invest
- Right now, we HIGHLY recommend Austin, Texas
(not Dallas, not Houston...)
Buying a new home from the builder
Tenants
Property Management
Never pay capital gains tax - 1031 Exchanges
Depreciation is your friend
Leveraging your money (it's a beautiful
thing!)
Tenants in common -
TIC Investments
Excel Spreadsheet
Investment Property Analysis worksheet
(note: you must have Excel on your computer to open this)
When To Sell
Miscellaneous - And
recent remarks by Suze Orman