So you are thinking about doing a 1031 Tax Exchange from your rental-rambler in Nebraska into a vacation rental in Princeville, Kauai? SMART! Lately I’ve been reading articles with too much ‘legalese’ so I’m going to put it down here in English.
What is 1031? How does it benefit me? How do I “DO” it? What does it cost? What are the time-frames I must abide by?
Here are the answers to all of these great questions.
What is 1031: It’s where you take money you make from one investment property and not pay tax on it because you are investing the money into something else that you will pay taxes on, so the government gives you a pass on the taxes. For now. A like kind property.
‘Like kind’ defined: Investment for investment but you can get creative like this; vacant land (you are land banking for investment) can be exchanged for commercial farm, golf courses, hotels, single family, multi-family rentals like condo’s or duplex, 4 plex, office, retail space and last but not least more land. So as you can see, as long as you are exchanging investment for investment you should be good to go. If you are unsure about your plan and need advice, drop me a line at 808-755-5866 and we will look at your situation.
How does it benefit me: You defer the capital gains taxes on to the next property you purchase. Awesome!
How do I do a 1031: When you list a property for sale declare that you are going to 1031 tax exchange the proceeds. Tell your listing agent and the escrow company you intend on using to close the deal. Then you start thinking about what you are going to reinvest in. Write the addresses down, you’ll need them for the declaration step which comes next. When the deal goes into escrow make sure you find out who their trusted 1031 facilitator is in the state you are buying the new property in. Call them. Tell them you expect to make “X” amount of money and you’d like to 1031 all (or part) of that profit. Then the escrow agent closing your listed property will work to send the money over to the 1031 agent and it will be held there safely until you close on the new one. EASY.
What does it cost: A few hundred bucks. Worth it.
What are the time-frames I must abide by: You can identify up to 3 properties you want to exchange into. This must be complete within 45 days of when the property you are selling closes. So do your homework early. Then once you identify the properties you have a whole 6 months to close on one or all of them. 45 days to identify and 6 months after to close. Plenty of time.
Frequently asked questions:
Can I buy more than one property with a large hunk of earnings?
YES. You can take 500k and split it into two chunks to put down on two properties.
Do I have to spend it all?
NO. You tell the closing officer on the property you are selling to send the facilitator how much you want to 1031 and the rest you claim as capital gains.
Hope this helps! If you need any more information email or call me and I can walk you through finding 1031 facilitators anywhere in the nation. I just did my own 1031 recently and used OREXCO
1253 S. Beretania Street
Honolulu, HI 96814
Get your juices flowing on a nice place to exchange into by reading some of our guides on Kauai Real Estate Group:
North Shore: http://www.kauairealestategroup.com/guide/north-shore/
South Shore: http://www.kauairealestategroup.com/guide/poipu/
Billy O’ | Team Leader 808.755.5866