TOP 3 Mistakes Investors Make during a 1031 Exchange
ฝัง
- เผยแพร่เมื่อ 25 มิ.ย. 2024
- I've done a lot of successful 1031 exchanges and I've also had some failures along the way. Today's video is all about the mistakes you want to avoid when making a 1031 exchange.
📚 Need Some Proven Strategies for Raising Private Capital?
Grab a Copy of Matt's book "Raising Private Capital" amzn.to/3hGCAyT
💻Download your Free Trial for Kindle to get "Raising Private Capital"
For only $9.99 here: amzn.to/3f5EdnW
🎧No time for reading? Download this Audible Free Trial and get "Raising Private Capital" Audiobook for FREE here: amzn.to/3rTuLJL
⚙️Our Gear & Gadgets⛓
Daily Filming Gear:
🎤 Podcast & Interview USB Mic - Plug N' Play (Mac & PC) amzn.to/2TEv9Pv
💡 Office Ring Light with Phone Mount: amzn.to/3kyxu9B
📸 Canon 80D Starter Kit for Filming: amzn.to/376J1F8
💎 Crystal Clear 4K DJI Pocket 2: amzn.to/3iocCiv
"Boots-On-The-Ground" Necessities:
🥾 Justin's Famous Boots: amzn.to/3iQYsqI
📱 Selfie Stick Tripod: amzn.to/376lC6I
Budget- Friendly Filming:
💡 Clip-On Ring Light: amzn.to/3BL7gXz
🎤 The clearest shotgun microphone: amzn.to/3i8vzqJ
📱 Compact Desk Phone Tripod: amzn.to/3zcr83F
🔦 Mini LED Lume Cube: amzn.to/3zdEBbN
This video is not sponsored. Some product links are affiliate links which means if you buy something we'll receive a small commission.
Connect with The DeRosa Group on Social Media:
/
www.derosagroup.com/
Connect with Matt Faircloth on Social Media:
/ mdfaircloth
/ mdfaircloth
/
www.tiktok.com/@matt_derosag?...
Disclaimers & Copyrights:
"Robert Kiyosaki" by Gage Skidmore is licensed under CC BY-SA 2.0
"As an Amazon Associate I earn from qualifying purchases."
Learn More about The DeRosa Group by Checking out our popular videos:
How I bought a 18 Unit apartment with NO MONEY out of Pocket
• How I Bought A 18 Unit...
Share This Video: • TOP 3 Mistakes Investo...
• TOP 3 Mistakes Investo...
#MattFaircloth #derosagroup #1031exchange
![แฟนแนวใด๋ - ยูริ โตเกียวมิวสิค [OFFICIAL MUSIC VIDEO ]](http://i.ytimg.com/vi/4_XVMuhhbsU/mqdefault.jpg)
What are some mistakes/lessons have you learned when it comes to doing a 1031 exchange?
Its difficult to orchestrate the sale of that many smaller properties, but yes you can do it
So I purchased a house and fixed it up and put back on the market, so I can't do a 1031 exchange with that property?
Reverse exchanges are more difficult because you typically need the cash up front to buy before you sell.
I'd like to do a 1031 on an empty lot with improvements with no existing mortgage and sell it at 780k to acquire a house 800k, with using some of my own cash to close.
Question after that is, AM I ALLOWED TO MAKE A LOAN or a HELOC on the new property I just purchased and how soon after will be ok?
Great video! Thanks for info.
Thank you so much for explaining this!
You’re amazing !!
Thank you!!
Solid advice brother, thank YOU for sharing it. Be well. JB
You bet
Thanks great job you explained it and made it very clear for me.
Your welcome!!
Appreciate pointing out certain unexpected mistakes!
Thanks glad you liked it!
Thank you, very helpful!
Glad it was helpful!
Great information, thank you
Glad it was helpful!
Very informative. Thank you for the explanation.
Glad it was helpful!
Awesome video Matt! Bought your book as well
Awesome! Thank you! Hope you enjoy it
GREAT video!!! 2 Questions...
1) 200% option question. We are trying to pick up 10 or so properties from a $2.6m sale. Of course, in that price range we will need to fix up some/all of the acquired investment properties. Can the improvements be contracted(for future completion) at a set rate or must they be absolutely completed day 180?
2) Can we immediately go into a lease-purchase with a tenant in one our new properties, and, if so, when would it be considered and actual purchase that would need to set up for the next 1031?
We are on day 10 of 45 and only have 2 properties (@$450K) identified. Hopefully these questions aren't silly. We really have no idea what we are doing.
great explanation
Thanks! Glad you took value from it. Here are some free goodies. Just text DEROSA to 66866 for several hours of video training, articles, and other stuff you can't get anywhere else. Enjoy!
Amazing video! For someone like me seriously looking into it, this was an important, yet trustworthy start :) . It was very well explained...
A question for someone filing in my case, though...
- Let's say you've made contracts to aquire the new properties before the sale of your profit-turning one.
- You also have a trustworthy, bonded and insured custodian, and you can easily make both of the deadline windows.
- And you are the only investor (on the sales title and who is purchasing) in this 1031 exchange venture, so no problems with the deal being straightforward...
...What if you desire purchasing multiple properties in this exchange instead of just one?
Since you must buy with the entire price of the sale... and, like me, you therefore opt to buy multiple properties (since the property you want to own is not comparable in value to the one you will profit from... for even half of its sales amount)...
can a guy legally list several properties as his target purchases in this filing instead of just one? -_- Eager to know the answer to this curiousity within dealings. ...Thanks!
That was quick; It seems like the answer is "yes." You can buy multiple investment properties in this exchange. :)
I think your question is can you list several properties as your potential targets, and the answer is yes you can list more than one. You also don't need to close on all the ones you identify as possibilities just the one (or ones) you do close on must be on the list of properties you identify.
@@DeRosaGroup Thank You :).
Great content. How long does the second property (on which the proceeds from 1031 exchange would be used) need to be rented, before we can use that as a primary home at some point in future?
Great question, I am not sure if there is a limit on that. If you move in and live there for a few years you could sell it and reduce or eliminate your tax burden. Check with your CPA.
Thank you the video has a lot of great information! I want to do 1031 exchange in the near future. What are the fees involved in the process?
Typically it depends on the size of the transaction. It can range between $500 and $2000.
I would like to clarify something about what you said. You do not have to notify the IRS within 45 of what your replacement property is, you have to give written notice to your QI what your potential replacement properties are.
Yes! Nice catch. You are correct, you don't need to notify the IRS just your Intermediary.
If the single-member LLC owns more than one property and one of the properties is sold, can the proceeds of that one property be reinvested under the 1031 exchange rules?
Finally!!!! Someone that actually has answers to my questions! Thank you so much sir. How can I talk to you directly? Even if there is a consulting fee. Please let me know.
All my social media links are in the video descriptions! Looking forward to hearing from you!
I've been doing a lot of research on 1031s as might be doing one soon and I want all the knowledge I can have. This video was real helpful. One thing you said that I don't think is entirely correct.....you said you can't buy a less expensive property in the 1031 exchange. From what I've seen, you may buy a less expensive property, but you will have to pay some taxes. So it's not entirely tax free (or deferred), but it could still be a big tax savings.
Thanks for the clarity!
Thank you for clarifying that Jeff Stanners. Let’s say you buy property #2 for 200k , sold #1 for 220K. Do you pay taxes on the difference ($220k-$200k=$20k)?
@@fu-linghitt57 Yes, exactly.
Can I purchase multiple properties with the 1031 funds or does it have to all be used on 1 property?
Hi, I have a question... if we sold a home and a week later we found intermediaries, is there still a chance for 1031ex?
Also, is there a paper work involved filling out, if yes, where do I find it? Can I do it without CPA?
Can I keep my basis money that bought the property with, and just move the profits into a 1031 with taxes?
thank you so much for your quick reply. We have two rental houses and our personal home. It was one of our rental homes that we wanted to sell and use the 1031 exchange to build our new home. But my understanding is that we cannot. is that correct?
You can't sell the rental and then build a house for yourself, unless it's a multi family where you live in one unit and lease the others
If you successful did a 1031, but before filing taxes for that year, Can you decide to not use it anymore if you realize that you won't be paying much taxes?
Many aren't aware that you can actually carry it in your personal name and convert it into in LLC in some circumstances e.g property is owned by 'John Smith' but convert it into an LLC using 'John Smith, LLC', so the idea that it's not possible to change names is actually just circumstantial for some.
That's very creative!
Hi. Thank you for an informative real estate tax saving strategy. I just stumbled onto this and I have a question: my parents owned a duplex and now has gifted it to me in a form of a trust which I have full control of. They have one apt which they rent and the other they live-in. My only condition was for my parents to live in their apt rent free...of course. Can I do a 1031 exchange provided that I use the all the sale’s proceeds for the new property and same trust name. Thank-you.
Of course, and you would have to keep it in the trust. But bear in mind if your parents are living there and not paying rent you need to figure that out first, no buyer will want that!
Informative video. Question: Last year I bought a land only property in Colorado and it is zoned as Agriculture-5 (Ag-5 means parcel 5-35 acres in size). Currently I can do agriculture and a residence on the property. We plan on building a residence on the property and some Ag crops. I am working with the county for a variance of use to also be able to build a business on the property. I own a rental property (house) in Georgia that is fully paid off. I want to sell it and use the 1031 exchange to build the business building on my property. Is this allowed?
If you are planning on living there yourself you may not be able to pull this off. The 1031 is meant for transfer from one investment property to another
great video! what is the property your are selling has a mortgage with balance? You would need to pay off the bank at time of closing on the property you sell. How does that work?
Yes, you would pay off the bank at sale and take all the profit and roll it to a 1031 custodian. Then take that profit and use it as your down payment/equity for a new deal. You can get a mortgage on the new deal also.
Great Video. How do you research a good 1031 Exchange custodian?
Ask for the following: references, copy of their insurance policy, if they are bonded, how many transactions per year.... It's an unregulated industry meaning there is not much of a license you need to have to be a 1031 custodian so it's important to vet them hard.
@@DeRosaGroup Can most banks act as intermediary custodian?
Number 4 and 5 mistake they don’t usually schedule a to Z Interdiction Trust Administration to manage it along with her entire wealth portfolio.
Never heard of this but will look into it!
Thanks for the informative video. We did a 1031 exchange recently and the full proceeds of the exchange was transferred to the new property. Since the replacement value was higher, need another co borrower to the loan. Title is now vested under a 70% and 30% ownership. Does this invalidate the 1031 exchange? Thanks
This would likely qualify as a tenant in common because the new property needs to be held by the same entity as the selling property.
Great info!!! I have a TSP (Thrift Savings Plan) which is the Governments version of a 401k. Can I use my TSP to do a 1031 exchange?
No, that wouldn't qualify as a like kind exchange.
Thanks, for the informative video. I am considering selling a lot to a builder and will close in 2 months. I will seller finance it for him through the sale of the build he is going to do. Can I do a 1031 exchange that would not be funded at close? I wouldn't have the funds until 1 year or so, after closing. My guess is no, but just checking.
Doesn't sound like it because you need to roll into the new deal within 180 days.
Great segment. Is it better to go into a slightly bad deal to save the taxes on a 1031 or pay the taxes? I guess it depends. Right?
Great question. A few things to consider:
1. Don't ever do a really bad deal just to do a deal. I'd rather see you just pay the taxes than do a bad deal.
2. Consider that you now have your original investment plus profit on the sale of the first property. So the cash flow you make on deal 2 can be a less, as compared to what you put down on it but you should really be comparing it to cash flow versus your original investment.
3. Also consider the tax savings versus the freedom to not do the 1031 and have free cash to sit on and wait for the right deal.
Hope that helps!
Good commentary
Thank you!
Is there a limit to the number of properties that can be identified or nominated to replace the original property as long as total is same or more?
No limit
Good vid. Thanks. Why should one NOT hold the original investment property in their own personal name? In other words, why hold it under an LLC? (Understand about the need to have the newly purchased property held in that same name. That's not my question.) Thanks.
Holding in an LLC just gives liability protection, it doesn't help with 1031's or taxes.
You made a clear point that property 1 is an investment property. My gf and I are about to sell our (our LLC'S) 1st fix & flip. Does a 1031 exchange not apply?
Its VERY hard to get a 1031 qualified on a flip. It's because you have to show that you had investment intent (rental investment) on the first leg of the 1031. Most flips are not setup to be rentals so you may have to eat the profit on the sale. That said, if you buy some rentals here and there you can wash out some of your profit on sale of your flips from the passive loss on your rentals. Speak to your CPA about that of course!
Great video. I'm with First American Exchange if anyone needs a reputable QI.
I'm happy to see that you like what you see here. You should join our Facebook group! We put some exclusive content there, and help people connect with people in their community. This is the link, in case you haven't already:
facebook.com/groups/1870891109678497
I will look you up! I have a property to sell and will clear about 160K to go into the 1031. Potential new property will require 120K down. What do i do with the remaining? I might get a second property but what if i cant find one?
Can it be a purchased in another Country?
I did A1031 years ago or one of my properties I purchase was a house. Can I still use that house now for personal use, or did they eliminate that rule?
Yes you can make it your primary and if you live there for more than 2 years you can sell it and keep the proceeds under the tax rules
You discuss due diligence around insurance and bonding in choosing a QI. Do you ask for proof? What exactly should I look for in that due diligence to qualify a QI?
That's a good question. You should join me on Fridays at noon Eastern and ask the question live. I can give you a detailed answer and we can chat a bit.
Just join Insiders by clicking this link: facebook.com/groups/DerosaInsider
Then send an email to LiveSessions@DeRosagroup.com to confirm.
Would building the house and then selling it qualify as investment intent? Could the 1031 exchange then be used to aquire the raw or developed land which would be at a higher value than the house?
It could, as long as you can prove that the first sale was for long term investment intent not a flip.
Well Explained ! How much it cost to invest in 1031Exchange fund? Do I Have to go through a lawyer to create the trust Fund? Pls let me know.Thanks!
A 1031 is just a vehicle to sell one rental property and buy another without paying taxes. The legal can run between 500 to 1000.
@@DeRosaGroup but I have 0 rental properties and I want to get in. Do I hold a chance?
We are thinking about selling 3 rental properties and invest into possibly commercial properties. The 3 properties are own by two individual owners right now. But the commercial properties that we are intended to buy is going to be own by only one of the two individual owners.
What do we need to do to make that happen?
Thank you so much for your time.
It will be hard to 1031 in that case. The ownership structure of the property sold must be the same as the structure of the one you are buying.
What does identifying a property mean? Does that mean I have/can have multiple contracts out on different properties “just in case” while in the process of making a final decision?
No, identifying the property is just telling your 1031 custodian in writing what you plan to buy with the sales proceeds
Breaking the Timeline...Choosing the custodian...Misunderstanding the rules
Thanks
If I have an airbnb that i dont live in and i sell that house and buy another house can i move into that house? If I cant what if the new house has another living area and I airbnb that section? So its still an investment except its my main house also?? Thanks for your time and thank you for the great video!
As I understand it, you can sell the AirBnB, buy a multi family, then move into a unit. For good measure I would pay a nominal rent to yourself for the unit you live in.
Great video. Do you think you can do a zoom information to my office? My office is in Alexandria Virginia. On another hand, if I am mistaken, you said that in order to start 1031, the house you want to sell has to be own by a Company or LLC. How about if my client her husband own a property and with that procedes they want to buy 2 condos for rent. Can they do that?
It doesn't need to be in an llc, it's just that the new purchase must be held in the same name on title as the one that they are selling. As long as the one they are selling is an investment, and the new purchase is a higher cost than the sell price of the one they are selling, they should be ok. They need to use a 1031 custodian also, who can shed more light. Your title company can recommend one.
@@DeRosaGroup Thank you
In California are funds still held for state and federal taxes if you role into a 1031 exchange?
Not sure you should check with a local title company.
If I want to sell a property, complete a 1031 exchange with construction and build on land I already own, do I just need to have the loan in 6 months or does the build need to be complete?
That's a complex situation, you should consult with a 1031 custodian. I believe you just need to buy the new land in the 6 months, construction can come after
What about" boot"
This is one of the things I'm looking for also.
Can I decide to start the process of a 1031 exchange days after selling an investment home?
Or what needs to be done before closing the home if anything? Thank you 😊
The proceeds of the sale must go directly to a qualified intermediary. If you have already received the proceeds, the 1031 is no longer an option.
How diversified should I be after closing on a rental property I’m looking at as 1031 replacement- I really don’t want to be over leveraged on my new purchase
Any ideas
This is a way deeper discussion, would love to have it on Mentorship Monday? You open for going on the air with me? If so email us at helpme@derosagroup.com with this question.
When we talk about the custodian and the 1031 capital, are we talking about the boot in the exchanges? I thought no money was really passing through the parties (other than boot) since both parties were essentially just keeping their tax structure from the property they gave up.
All the sales proceeds have to go to the custodian, including the initial equity you had in it when you bought it, so it's not just the money that would have been taxable.
Can you take the profit and put it into multiple other properties or does it have to be into just 1?
It can be multiple properties
Selling rental properties with a multi member LLC, other members are keeping the LLC and I’m branching out. Is there anyway I can take my money from the sale and 1031 if it’s not under the same LLC
Thanks for sending this question! We're sorry for replying a little bit late since we're receiving an influx of comments. If you want your questions to be answered by Matt LIVE, you can ask him every Friday noon on DeRosa Insiders for FREE! facebook.com/groups/DerosaInsider
How long you have to hold property before you can exchange? What about vacant investment intent?
There is no timeline on how long you have to hold and vacant is OK as long as you can show investment intent (not speculation).
Do I have to do the 1031 exchange between the investment I sell and only 1 property that I can buy; or can I buy multiple properties with the property I sell?
You can buy multiple.
My mom recently sold her investment house that I lived in and we didn’t know how to do this. We asked the real estate agent we worked with and he didn’t know and asked around but no one knew. It was a while before we found someone and turns out it had to be started before we sold the house 😭
you only need to have the 1031 setup before you close on the first sale, not before you list it for sale.
Also if i just sell a property and then use that money to buy another property (multiple properties) without the 1031 exchange, would I still need to pay capital gains if it is already invested that same year?
You may have to pay some tax, but if you are filing taxes with your profession being "Real Estate Professional" you will absorb most of the tax obligations with the new purchase, and a Cost Segregation study right after you buy.
Question: When you say As long as the new selling is an investment and the new purchase is a higher cost than the sell price than the sale price of the one they are selling, HERE is the question. When you say higuer price you mean EXAMPLE
Selling price is 600,000 and the total price of the both investment properties will be 700,000 ? or each property should more than 600000? Your reply was really helpful.
Hey Giovanna! Here's an example - person sells property A for $600,000. Their profit from the sale is $200,000. They do a 1031 exchange, so the $200,000 goes to a third party custodian who holds the money in escrow. They don't take any money from the closing of property A in their pocket. They buy property B for $800,000 (must be more than the $600,000 sale price of property A) or they buy Properties C, D, and E which total a purchase price of $800,000 (just needs to TOTAL more than $600,000, the sell price of property A). The 1031 custodian gives the $200,000 from, escrow to the closing agent at the purchase of Property B. Does that help?
Does it matter if the first one is an inherited property? When my grandfather died, he left his house to my mom and my uncle and they are going to sell it. Can they only do a 1031 if they buy another property together? Or can my mom take her portion and do a 1031 on her own with a new property?
She would have to buy it with your uncle, and she would also have to show that the property being sold was an "investment" not a residence for your grandfather.
Do you have a list of custodians you use?
Found this article that should help... www.thebalance.com/best-1031-exchange-companies-5077551
If I choose NOT to keep rolling over into more investment properties until I die, when is the deferred tax actually due to the IRS? In 2 years? And is there risk that the tax rate will go up in the meantime? Or do you pay at the rate that was in place when you bought the property? Tx
You pay the tax in the year you sell and don't do a 1031. And you pay taxes at the rate of the year of sale.
Very informative, but have some questions...1)You mentioned name need to be the same in 1031 exchange from investment A to investment B, but I just realized my investment A is still in my maiden name not in married name. Can I still do it? Do I need to change my maiden name to the married name first in investment A? Not sure how to do that. 2)If Investment A bought at $419K and if sold at $800K, I believe you said $381K go to the custodian or Q! (are they the same?) So I keep the $269K ($419K - mortgage $150K) in my pocket to use as a downpayment? Is that correct? 3)Where can we find a safe custodian or QI? Any recommendations? Thanks so much
Glad this video helped! You can ask Matt directly every Friday noon when he goes live on DeRosa Insiders. Join the community for free: facebook.com/groups/DerosaInsider/
Great video. I own recreational land with a cabin (non LLC). I want to sell it for a similar property that's bigger and costs more. Can I use a 1031 exchange?
As long as it's an investment property now (not a primary residence for you or a vacation home) you can, but the new deal needs to be held in your own name also, not an LLC.
Hi, can I do 1031 exchange if a sold my commercial property and I finance the loan, and after carrying a loan for year, the lender want to paid off the loan?
Thanks for sending this question! We're trying to answer as many questions as we can. You should check us out on Facebook! Matt can answer your questions LIVE.
facebook.com/groups/DerosaInsider
Can the profits only be used for a fixed asset (residential/commercial housing) with the 1031 exchange? What if I purchase an RV with the intent to rent it out as my investment vehicle?
Good question. I believe that an RV is considered a vehicle not real estate, like a "fixture". Talk to a good CPA on this but if you are planning on having the RV mobile it wouldn't be a good fit for a 1031.
If I sell a property and place it in a 1031 exchange, can I buy multiple smaller properties with all the profit that all together total higher than the amount I sold the property for?
Absolutely!
Finally, the question and answer I was looking for! Thanks!
If I sell my investment property can I keep the original proceeds that I used to purchase the property on a 1031 exchange and only use the profit I made to buy another property and not pay taxes on it.
You have to take all the cash from the sale and roll it into the next purchase, so if that cash from sale includes your original investment, it has to get rolled over also.
Can you clarify #3? You cannot use the money from a 1031 and apply it as a downpayment on a new property?
Sure. You can't take the money from the custodian and use it for the new purchase ahead of the closing on the new property, like taking an advance on the funds before closing on the purchase.
Can an individual use the 1031 Exchange be used to delay paying capital gains when liquidating a stock and bond portfolio to buy real estate?
No, it has to be a like kind exchange. So real estate sale for real estate sale
Let say I bought the property out rite at for 150,000. Ye, I have been renting it out and acquiring depreciation. Now I can sell it for 240,00. Do I have to take the entire purchase price to the new property. Or can I just transfer the profit?
All the cash from the sale must get rolled into the new purchase. In your scenario, it would make the most sense to refi, pull cash out, then sell
Can a parent or in-law be a third party intermediary for the 1031 exchange? You said a down payment can't be used for the purchase of the purchased investment property after selling your initial investment property. The down payment is for the house itself. Why can't the monies be used? If I have a property and I purchased it 20 plus years ago for 250k in 2002. The mortgage is now 110K. I've invested over the years 200 to 300K into the property. I depreciated the property on my taxes. I bought this property prior to being married. We file jointly since 2010. If I utilize a reputable 1031 exchange for example IPX1031 do I send them the entire proceeds from the sale or just the equity into the replacement property? If I were to send the entire proceeds would that prevent me from the depreciation recapture until a later date by doing the 1031 exchange. I plan on utilizing the 1031 exchange also as estate planning so in this way my children will not have to pay any capital gains on this property as I'm a cancer survivor. Thanking you in advance.
You would send all the proceeds from the sale to the 1031 exchange custodian, but if you have lots of equity lined up you want to refinance FIRST, then sell. Refi proceeds are tax free. But talk to your CPA about your cost basis on the new property because that rolls over also.
hi ,so we purchased a propety ,investment ,new build for air b n b. we lay out 750k for land and build. we sell for 1.25m. so 500k profit can i take the 500k profit do a 1031 exchange and buy a new vrbo build for rental and buy a propety for 550k. is the greater value part on the profit only or,, i sold the propety for 1.25m and we have to purchase a propety more then 1.25m example 1.3m
It's complex but you can buy a new deal and incorporate the construction costs as part of your cost basis. So as long as your new deal has a total cost of more than the 1.25 million you sold the first deal for, you are OK. You need a GREAT custodian to help you with this tho.
I turned my primary residence into a rental and have been renting it out for 14 years since I got married and moved into his place. Since I didn't purchase my house as a rental to begin with, does that disqualify me from doing a 1031 Exchange now?
I’m pretty sure you can
Hi there! I've got some questions on the cost of doing a 1031. Let's say I sell my rental for $500k. The fees to sell (commissions, marketing) are around $30k. Do I need to find a new property at $500k+, or can it be $470k+? Also, when I complete the sale, I will pay off that mortgage. With the new property, I would need to start a new mortgage, but as an investor - how do those interest rates compare to loans for primary residence?
Good question. Your new price needs to be at or above the gross sales price if your current property (not the net sales price, after fees). The rates are around a percent higher for investor grade mortgages and are typically only rate locked for 5 to 7 years.
My understanding and from all I read..is the the 1031 is based on net sale proceeds not gross...am I missing something?
Please define “larger real estate”. If you’re selling a rental property which you’ve owned for several years. Does the “new” property have to larger in the sense of square footage or does the purchase price have to be higher than the capital gain? Can the “new” investment property be land?
Thank you for the video.
Good question. No, it doen't need to be physically larger it just needs to be of a higher cost basis, meaning a higher price tag. And yes it can be land.
I believe another person has post a similar question. The investment property you buy can be lower price than the sell price of the property being sold. You just need to pay taxes on it. I am just not sure how the taxes is being calculated 🤔
Looking to sell a property in one state and buy in another, I understand that is allowed. Can we buy a home, at market value through a realtor if the home is owned by a child?
Wow, great question! It would really depend on state law and who the minor's guardian is. My GUESS is that the child would need to have a legal guardian sign off also. Also consider asking it on our show. We would love to have you ask it LIVE on our Mentorship Monday program. Can you email it to HelpMe@DeRosaGroup.com?
What if you have a three partner llC. Do a 1031 and purchase 3 smaller properties that totals more. But one member wants out. Can you sell one of the three properties and not get hit with capital gains or should a refinance on all three properties be done then pay the member off... :-) trying time be creative here after reading the comments.
Thanks
The sale of one of the properties to the individual partner would be a taxable event, sorry!
I would like to sell my rental to purchase a retirement home in a different city where I would eventually live. I can rent the retirement home for a few years before living there, and eventual refi. Do you foresee any issues?
Not off the top of my head but you should talk to an attorney and a CPA.
I live in 1/3 of a triplex and have rented 2/3 and this has always been treated separately on the taxes, once I sell can I: 1031 2/3 of the sale price or 2/3 of sale price minus the initial 2/3 of the buying price and plus capital expenditures and minus depreciation?
It's even easier. You can keep 250k tax free if you are single or 500k if you are married tax free, since it's your primary residence. You can keep the money or roll it into an investment but no need to do a reinvestment unless you want to.
@@DeRosaGroup the gain is greater than the allowance
It still may be worth keeping the profit because only profit above the 250 and 500k is taxable
Is a custodian the same as a qualified intermediary? Lawyers I’ve spoken to use QI for 1031.
Yes, same company
I'm selling a house I have bought for rental It was rented for 2m-s. Then I had to fix the house and instead of renting I decided to sell it. I own the house for 7 months. Can I use 1031 excgange? If I do what happens to The mortgage I have on this house?
From what I know, yes you can 1031 because you had investment intent. Your mortgage would need to get paid off on the sale, and the money you make above the mortgage on the sale could get rolled into the next deal.
So you HAVE to buy the next property for more money than the old property? It’s not ok to use the money and buy something outright without a mortgage?
Sure you can buy free and clear but the new property must be at a higher cost basis than the first one which would mean you need to bring more cash to the table
How can you identify your new property if you are unaware of what the old property will sell for ?
That's one of the challenges. You should know a range for the target sales price but you wouldn't want to put property B under contract until you know what Property A is selling for.
If yo cannot use the capital gains for downpayment of the next property , then what can you use the funds for????? Pay the new mortgage??
You can use it for money down
Your custodian intermediary--which is required as well--should you be keeping you straight on timelines
Agreed
Can I sell an income property and do a 1031 exchange to my primary residence and turn that primary residence into a rental? I'm living in it but I'm also renting rooms in it.
Since you already own your primary, you can't 1031 into it. Yes I could sell your primary and keep up to 250k if your single and 500k if married tax free, then buy another primary and lease part of it again.
@@DeRosaGroup is the $250k tax free at any point of sale or is there a time limit?
I’m selling 38 acres I’ve owned for 30+ years. I’m going to have $140,000 capital gain. I’ve been looking for a piece of land closer to my farm. I found 20 acres I can purchase for $100,000. So a 1031 wouldn’t work since I’m buying land less $ than what I am selling. Also, another problem is I can’t find anyone in my area that are set up to be an intermediary.
Thanks for sending this question! We're sorry for replying a little bit late since we're receiving an influx of comments. If you want your questions to be answered by Matt LIVE, you can ask him every Friday noon on DeRosa Insiders for FREE! facebook.com/groups/DerosaInsider
I have a question. 1) Can I rent out my primary home as a rental and then 1031 exchange it for a multi unit or an apt building? 2) How long do I have to have the home as a rental on my tax return? 1 yr or 2? I have over $2M of equity sitting on my home, and I want to use it to make passive income now that my kids are going to college soon. I heard Biden may get rid of 1031 exchange altogether, and I don't know what to do. 3) Can I rent it out to a company that I form and have the company pay me rent and report that as income and have it count as a rental home so that I can do a 1031 exchange?
Great question. Love to hear what the youtuber has to say 👍
Thanks
Great question. First reaction is that you have a ton of equity in your home. If you had less you could sell and keep up to $250,000 if you are single and $500,000 if you are married tax free. Anyone can sell their primary and keep that much with no 1031 at all. Since you have so much equity you can either sell and bite the bullet and pay the tax, or you can try and roll it over as an investment vehicle and then sell as a 1031. That's complicated and the IRS may challenge it as you would need to prove that you bought the house for investment intent. I would recommend that you lease if to a year, report it as a rental, show the rental income as passive on your tax return, then sell it and buy an apartment complex in the same year, and do a Cost Seg analysis on the complex asap. This will create major loss on the complex that will wash out the passive gain on the rental sale. And since it was your home within 2 years of selling, you can keep the income up to $500,000 tax free if you are married as I said above. And above all else, talk to a CPA before doing anything! I hope that helps!
Silly question what if you have Mortgage on the property.... I think I’m confused. So if i own a house that is being used for a rental bought for 150,000 still owe 100,000 how would that work? What would that look like (Not sure if I’m making sense)
No worries. You would sell it and have 50k in profit. You would then need to take that 50k and give it to a 1031 exchange custodian at the closing of the sale. Then you would buy a new property that costs more that what you sold the first one for, which was 150k. So let's say you paid 200k for it. The 50k in profit goes towards the purchase of that property and you would have to get a loan on he rest
I've owned my home for 3.5 years. The first two years it was my primary residence. For the last 1.5 years it has been a rental property. Do I still need to do a 1031 exchange to avoid taxes or can I still take the $500,000 capital gains exemption (I'm married and have been the entire time). Thank you so much!
As I understand it, you can still sell and keep all the proceeds, or at least up to 500k of it. I believe you have to live there for two of the last five years, that window seems like it's closing so if you're going to do this you need to sell soon
Thank you for such quick feedback!
What do I do if I sale my rental for $250 and roll it over to pay off my primary, but my primary I only owe $90 and I still have $160 left over?
You cant' take the profit from a rental sale and use it for any other purposes, including paying off your primary. All the proceeds from the sale need to get rolled over to the next deal.
Thanks for this video. Very good information. I have a question. My husband bought an Apt. before we get married. The loan/property is under his name. We want to sell this apartment and buy a house. Can we use a 1031 form if the house/loan is going to be under his name, but also mine? Thanks !!!
You can sell it, buy the new one under his name also which will be required for the 1031, then add your name to the deed after closing using a quit claim deed
@@DeRosaGroup I believe you can't live in the replacement property for 2 years. It has to be utilized as an investment property or you will be taxed the 1031 exchange will be null and void,
Thank you so much for this.
One relative bought a property for about $100k, selling for $500k, buying a new property for $700k. He is single. Will the escrow amount be $400k or $150k (500-250 tax free) (250-100)?
Hopefully someone can help me clear this out. Thanks
Ok got it, so the gain outside of depreciation recapture is around $400,000. The biggest assumption I need to make here is that he lived in the house for 2 of the last 5 years. You didn't say that in your comment but hopefully he did. If so, he can keep $250,000 tax free and pay tax on the other $150,000. That would be long term capital gains which is a lower rate, so not too bad all around. The other option is to 1031 exchange all the profit, including the $250,000 into another rental deal. He can't keep anything from the sale, all proceeds must be rolled to the new deal. He should certainly talk to a CPA about this also.
@@DeRosaGroup thank you so much. Yes this was a multi property. He rented out one unit and lived in the other one. From your comment, he has 2 options- sell and pay tax on $150k gain or Do a 1031 exchange. What if he decides not to sell and continue renting and living in the property. All he will lose is the depreciation amount after 27.5 years, correct?
So the money held by the custodian can't be used for down payment on the investment property I intend to buy with that money?
Not the earnest money deposit you submit with your agreement of sale but it can be part of the purchase when you close
@@DeRosaGroup You kept saying you can't use it for a "down payment" in the video. But you really meant the "deposit," correct? In my experience the deposit is usually 1% to 2% of the price. If I buy a place for $200,000, I'd only have to put less than $10,000 down as a deposit. But if I had $70,000 from the sale of the other unit, that would then go towards the down payment. Is this correct?
Yes, my fault, the earnest money deposit would need to be cash at the signing of the contract not 1031 funds
What if I didn’t make a profit from house A, can I still take the money that the house sold for and do a 1031 exchange?
You wouldn't need to. Even if house A sold and you got some cash back, if you didn't book a profit the cash back at sale is all yours to keep, no need for a 1031.
Under yhe 1031 can you sell your investment property and buy 2 cheaper investment properties that add up to being more expensive than your original property?
Yes, as long as the total price of the new properties totals to more than the one you sold. And it's not limited to 2, you can buy as many as you want.
@@DeRosaGroup Then after you use the 1031 do you have to wait a certain amount of time to pay off the new mortgage or will you face a tax penalty?
Paying off the new mortgage won't create a tax penalty, the only thing that would create a tax event for you is earning the money you need to pay the mortgage off with.