Is There an Equivalent in Canada For a 1031 Exchange?

If you remember reading our previous article What is a 1031 Exchange? you’ll remember that a 1031 exchange also known as the U.S. Internal Revenue Service Code 1031, states that investors of commercial properties can sell their property and reinvest those funds into a “like-kind” property. Essentially allowing investors to “defer capital gain taxes as well as facilitate significant portfolio growth and increase return on investment.”  If you’re new to the topic you can catch up on 1031 exchanges here.

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MyNOI connects investors with the knowledge they need to make smart decisions and the right brokers to reach their goals. As a team we gather & write timely and salient articles for you to develop your expertise as a commercial real estate investor and broker.

A Deferred Sales Trust may save you more than a 1031 Exchange

You’ve probably heard of 1031 Exchanges, but there is an alternative that may open huge opportunities for you and your clients. The Deferred Sales Trust. The Deferred Sales Trust solves many issues. The DST provides options for investors. And some of them are pretty exciting! So if you own property that you’ve considering exchanging – pause and consider this alternative.  Cashing out and paying capital gains taxes and 1245 depreciation recapture can be too costly and frankly unnecessary. Read More

MyNOI connects investors with the knowledge they need to make smart decisions and the right brokers to reach their goals. As a team we gather & write timely and salient articles for you to develop your expertise as a commercial real estate investor and broker.

Capital Gains Tax Solutions’ Brett Swarts Talks Deferred Sales Trusts

If you’re a commercial real estate investor or broker then you’ve probably heard of 1031 Exchanges, but there is an alternative that may open huge opportunities for you and your clients. The Deferred Sales Trust.  Read More

Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.

She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.

An Alternative to a 1031 Exchange

If you’re a commercial real estate investor or broker then you’ve probably heard of 1031 Exchanges, but there is an alternative that may open huge opportunities for you and your clients. The Deferred Sales Trust.  Read More

Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.

She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.

The State of Convenience Store Cap Rates

Convenience stores are expected to be occupied by high-quality tenants this new year. Some of which have achieved cap rates between 4 and 5 percent in the fourth quarter of 2017. If you are a Net Lease Investor and are worried about the future of your convenience stores and their tenants, have no fear. Read More

Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.

She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.

What Residential Agents Should Know About CRE Deals (Pt. 4)

In the 4th and final part of our What Residential Agents Should Know About CRE Deals series, Troy discusses what might be the most important thing you should know about being a commercial agent, understanding the market.

 

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Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.

She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.

How will Trump-Era Tax Reform Impact the 1031 Exchange?

With a new man in office and a string of strategies to “Make America Great Again,” it’s fair to say that many these days are sitting at the edge of their seats to see what comes next — it’s especially true for Commercial Real Estate (CRE) investors, who are on the cusp of losing the much-admired 1031 exchange due to Republican-led tax reform.

Just as a reminder, the Internal Revenue Service (IRS) permits owners of business or investment property to participate in the 1031 exchange (a.k.a. the like-kind exchange). In short, qualified participants are able to defer state and federal capital gains taxes if they sell their property and swap it with another of the same kind that carries the same nature, character or class.

According to CNBC, 63 percent of realtors surveyed by the National Association of Realtors said they had participated in the 1031 exchange over the past four years. Additionally, about 40 percent said the exchange was crucial to the transaction taking place.

Still in its infancy, the new presidential administration led by Donald Trump is working in-hand with the Republican-led Congress to forge a path for comprehensive tax reform that’s designed to slash corporate taxes and boost stimulus. Trump and his administration released a tax plan in April and called it the “biggest tax cut” in U.S. history. As congress continues to refine the plan, Trump is preparing for a tough fight.

Despite questions remaining about the reform, rumor has it the administration favors eliminating the decades-old provision from the tax code as a method of creating fiscal stimulus. Based on a 2014 estimate from Congress’ Joint Committee on Taxation, a repeal would generate $40 billion over ten years.

“There will be a big decrease in transactions which would negatively affect many U.S. taxpayers and result in fewer jobs in ancillary services involved in a sale/purchase like title companies, lawyers, lenders, banks, mortgage brokers, environmental companies, real estate agents/brokers and even reduced income to municipalities from less transfer tax revenue,” said Scott Saunders with Asset Preservation about the elimination of the exchange. Ultimately, a repeal, cap or restriction on the 1031 will have a lasting impact on multiple industries that utilize the exchange, Saunders said.

To counter, Jonathan McGuire a CPA with Aldrich CPAs and Advisors LLP said, “With the proposed changes, the repeal of section 1031 would effectively not be felt. The proposed immediate write-off of all buildings in the year of purchase, an investor could sell a building and use the proceeds to purchase a new building of equal or greater value.”

Stay tuned for more details about the fate of the 1031 exchange by following our 1031 exchange series online.

Stefanie Donahue is a freelance writer based in Bellingham, Washington. She’s a well-versed communicator with an extensive background in journalism and media production. Her writing draws from the insight of industry experts to uncover best practices for real estate investors.

4 Types of 1031 Exchanges

You know what a 1031 Exchange is and the basic rules that apply to them, but did you know that there are actually 4 types of 1031 exchanges?

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Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.

She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.

What you Should Know Before Hiring a 1031 Exchange Facilitator

If you’ve flipped through our 1031 Exchange Series from beginning to end and are still looking for answers, perhaps it’s time to consider hiring an exchange facilitator for assistance.

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Stefanie Donahue is a freelance writer based in Bellingham, Washington. She’s a well-versed communicator with an extensive background in journalism and media production. Her writing draws from the insight of industry experts to uncover best practices for real estate investors.

How to Find Qualifying 1031 Exchange Properties

Now that you’ve become an expert in the basics of 1031 exchanges and know how to navigate your way through them, you may be wondering “where can I find qualifying 1031 exchange properties?”

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Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.

She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.

Do I Qualify for a 1031 Exchange?

Now that you know the basics of 1031 exchanges, you may be wondering whether or not you qualify for a 1031 exchange. As mentioned in our previous blogs, a 1031 exchange is intended for commercial properties that are used in a trade or business, such as; office spaces, apartments, retail, and land properties. Unfortunately this does not include primary residences or any property held for personal use.

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Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.

She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.

Three 1031 Exchange Pitfalls

By now you’ve probably become an expert in 1031 exchanges, well at least we’re sure we have in all the researching and consulting we’ve done with experts in the topic. While you might think you know everything there is to know about 1031 exchanges, we’re here to give you the low-down about 1031 exchanges and unfortunately some of the pitfalls that come along with them.

So before you decide to jump in and rollover your gains from your current property to your exchange property, read up on these three 1031 exchange pitfalls that we’ve put together with some help from Realized 1031, Firstrade, the balance, and the NY Tax Attorney.

1. Rules, Rules, and More Rules

We’ve mentioned this before, but one important thing to remember about conducting a 1031 exchange is that there are rules and these rules are very strict. Some of these rules consist of the rigid time-frames in which you must identify a new property and sell your existing property (45-Day Identification Period and 180-Day Exchange Period), within these rules are even more rules. Like the rule that states that the replacement property being exchanged according to Realized 1031, “must have a purchased price and mortgage balance equal to or greater than the relinquished property sold.” If this rule and a number of other rules are not met, consequences and penalties are inflicted.

2. Tax Deferred, Not Tax Free

The term “tax deferred” can be confusing to some; what you must remember is that a 1031 exchange is tax deferred, not tax free, the two are not the same. According to Firstrade, “something that is tax deferred is something that must eventually have taxes paid on it. Something that is tax-free will not need any tax payments made.” A tax deferment is simply the postponement of the payment of taxes on capital gains, which according to the balance, paying taxes on capital gains can be deferred almost indefinitely.

3. Losses

With the awesome perk of tax deferment, comes the unfortunate reality of the deferment of losses.  This means that any losses acquired in the purchase of your replacement property are not recognized and instead are deferred, their recognition would only then take place when that same property is sold later down the road, according to NY Tax Attorney’s article titled “Gain, Loss, and Depreciation Issues in Like Kind Exchange.” What does this look like exactly? Imagine selling  your current property for $ 1 million and then making the exchange over to a like-kind property valued at $500,000, this loss of $500,000 is not recognized and thus, deferred. Instead of purchasing a replace property at the same value as your previous property, you’ve exchanged for a property that is valued less, thus taking a loss.

For more readings visit: Realized 1031, Firstrade, the balance, and NY Tax Attorney.

 

Want to learn more about 1031 Exchanges? Stay tuned, we’ll be blogging more about 1031 Exchanges in the days to come.

Read all the articles in our 1031 Exchange series here: https://www.mynoi.com/category/1031-exchange/

Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.

She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.

What Does Not Qualify for a 1031 Exchange?

If our 1031 Exchange Series has you gearing up to sell your Commercial Real Estate (CRE) property, be sure to read the fine print – the Internal Revenue Service (IRS) imposes a slew of restrictions on what types of properties can participate.

To refresh your memory, we’ll remind you that a 1031 exchange (a.k.a. the like-kind exchange) is utilized by owners of investment or business property. The exchange allows investors to defer capital gain taxes if they sell a property and swap it with another of the same kind, meaning they carry the “same nature, character or class,” according to the IRS.

 

Did you know? Property in the U.S. is not like-kind to property that falls outside its border.

All properties involved in a 1031 exchange must be held for business or investment use. Both real and personal property qualifies for the exchange, but personal property exchanges can be more restrictive. According to the IRS, four categories of property are completely excluded from the exchange and they’re explained below:

Inventory or Stock in Trade:
According to Equity Advantage, the IRS draws a line between investors who hold commercial properties for longer than a year and those who purchase properties with the intent of making improvements quickly and selling. They’re called “dealer properties” and they’re barred from participating in the the exchange because the property is considered inventory. Equity advantage calls it the “one of the largest ‘gray areas’ of Section 1031.”

Stock, Bonds or Notes and Other Securities or Debt:
Despite the fact that stocks and other non-real estate assets can be traded in corporate reorganization under Section 1036 (a) and Section 1037, the 1031 exchange allows just the opposite, explains Asset Preservation Inc. Even if these items are secured by a commercial property, they’re always excluded from 1031 exchange.

Partnership Interests:
Excluding an interest in a partnership was penned into the Internal Revenue Code in 1984, according to Asset Preservation Inc. By law, a limited liability company, also called a partnership, cannot participate in the 1031 exchange if an individual partner has no interest in the capital asset owned by the partnership. “The fact that a partnership owns a capital asset does not mean that the individual partners have an ownership interest in that asset,” says Asset Preservation Inc.

Certificates of Trust:
According to Asset Preservation Inc, these documents only represent a right to an interest in stock or a corporation and do not reflect a stake in real property. For that reason, they’re excluded from the exchange.

For more readings visit: IRS,  Asset Preservation Inc., and Equity Advantage.

 

Want to learn more about 1031 Exchanges? Stay tuned, we’ll be blogging more about 1031 Exchanges in the days to come.

Read all the articles in our 1031 Exchange series here: https://www.mynoi.com/category/1031-exchange/

Stefanie Donahue is a freelance writer based in Bellingham, Washington. She’s a well-versed communicator with an extensive background in journalism and media production. Her writing draws from the insight of industry experts to uncover best practices for real estate investors.

Here’s What you Should Know about 1031 Exchange Rules

Earlier this week, we told you what a 1031 exchange is and how many days you have to complete one. Naturally, you’re probably asking yourself, what are the ground rules?

To recap, the 1031 exchange (a.k.a. the like-kind exchange) gives Commercial Real Estate (CRE) investors the green light to reinvest returns from a sold property into real estate of the same ilk. Under U.S. law, investors who utilize the exchange are able to defer capital gain taxes, all while experiencing portfolio growth and ROI.

It’s important to note that the exchange isn’t tax free, instead it allows investors to postpone paying the tax. According to the Internal Revenue Service (IRS), the exchange can exclusively deal with like-kind property or it can also include cash, liabilities and other not like-kind property – the latter scenario would trigger taxable gain.

Under section 1031, individual owners of investment or business property as well as C corporations, S corporations, partnerships, limited liability companies, trusts and remaining tax paying entities can participate an exchange. To participate, investors must also exchange a property either through a simple swap or a more complex deferred or reverse exchange.

Properties involved in a 1031 exchange must be held for business or investment, not for residential or vacation purposes, for example, and must be similar in nature. According to the IRS, like-kind real estate is “property of the same nature, character or class.”

Also remember that investors have 45 days to identify a replacement for a relinquished property and the exchange must be complete 180 days after the sale of the swapped property.

The IRS requires investors to complete  Form 8824 with your tax return to report a like-kind exchange. The form asks for details about both exchanged properties, the dates in which they were transferred, a disclosure of the relationship between parties involved, property value, recorded gain or loss in sale, cash received or paid, liabilities and adjusted property basis.

To learn more, read “Like-Kind Exchanges Under IRC Code Section 1031and continue following our series. Tomorrow, we’ll go more in-depth about what qualifies for the exchange.

Stay tuned, we’ll be blogging more about 1031 Exchanges in the days to come.

Read all the articles in our 1031 Exchange series here: https://www.mynoi.com/category/1031-exchange/

 

Stefanie Donahue is a freelance writer based in Bellingham, Washington. She’s a well-versed communicator with an extensive background in journalism and media production. Her writing draws from the insight of industry experts to uncover best practices for real estate investors.

How Many Days is a 1031 Exchange?

You may remember from our previous blog that a 1031 exchange or the U.S. Internal Revenue Service Code 1031 is the deferment of capital gain taxes by investors on commercial properties used in trade or business. If you don’t recall this topic, you may want to read our previous article titled What is a 1031 Exchange? before reading further.

In regards to 1031 exchanges, there are limitations as previously mentioned in our other blog and some of those limitations apply to the amount of time you have in order to complete an exchange.

45-Day Identification Period

There is a tight period of time in which you as a CRE property owner/investor needs to make sure action is being taken. According to Equity Advantage, investors participating in a 1031 exchange must provide “an unambiguous description of the potential replacement property, on the 45th day before or after closing on the relinquished property,” this is known as the 45-Day Identification Period.

It’s important to remember that these time restrictions are tight and there is no way around them. According to 1031 Corp., extending the 45-Day Identification Period is impossible, but this doesn’t mean you shouldn’t make use of the time that you do have. Before your 45-day period begins, take action and look for potential replacement properties before selling your current property.

180-Day Exchange Period

This “unambiguous description” can come in the form of a simple list with 3 potential properties, a legal description of the properties, or their addresses. In total an investor has 180 days from closing to acquire a new replacement property, this is known as the 180-Day Exchange Period, which runs alongside the 45-Day Identification Period.

Rules

There are a number of rules that apply to both the 45-Day Identification Period and the 180-Day Exchange Period. Some of which include, the 3-property rule, the 200% rule, and the 95 rule, which we will cover in more detail in a later blog titled, “1031 Rules”. But what should be noted here, is that in order to benefit from a 1031 exchange, you MUST abide by these rules. There is no bending of the rules, these rules must be followed in order to meet all of the IRC’s requirements in order to reap the benefits from a 1031 exchange.

For more readings visit: Equity Advantage and 1031 Corp.

 

Want to learn more about 1031 Exchanges? Stay tuned, we’ll be blogging more about 1031 Exchanges in the days to come.

Read all the articles in our 1031 Exchange series here: https://www.mynoi.com/category/1031-exchange/

Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.

She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.

What is a 1031 Exchange?

What is a 1031 Exchange?

Join us as we begin our 1031 Exchange Series, where each day we’ll dive a little deeper into what 1031 Exchanges are and the insider tips and tricks you’ll need to know when it comes to participating in one.

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Dalesmy Gonzalez is a graduate of Western Washington University where she studied Business Administration with an emphasis in Marketing.

She specializes in optimizing digital marketing websites for commercial real estate brokers and connecting buyers, sellers, and investors across the US.