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Old 09-27-2006, 12:42 PM
 
24,205 posts, read 44,951,154 times
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Can a realtor or smart person 'splain for us what these deals are all about?

Thanks!

s/Mike
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Old 09-27-2006, 01:08 PM
 
Location: ♥State of the heart♥
1,118 posts, read 4,596,916 times
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Mike, a 1031 is referred to as a "Tax deferred Exchange." It is in the Internal Revenue Code, Section 1031.

This is often used in the case of when an investment (say a rental) property has reached the 27.5 year limit for taking depreciation. The property is sold, the seller has 30 days to find a "like/kind" property to purchase.

A 1031 exchange is inacted to defer capital gains taxes. Ideally, as the owner of the new investment property, you may now begin another 27.5 year cycle of tax breaks for deprecitation.

When this property is sold at a later date, and no further 1031 exchanges are inacted (You could, but let's say it's retirement time), the taxes that are owed at this sale will be at a lower rate.

Google "1031 Tax Deferred Exchange" and some good website links will pop up. The best one will be from the "Federation of Exchange Accomodators." They act as an agent for the exchange. In NJ, Title Agencies are entitled to prepare these exchanges. A good local realtor is trained to help you with the regulations, and this procedure. Hope you found this helpful!
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Old 09-27-2006, 05:50 PM
 
24,205 posts, read 44,951,154 times
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Default I think I get it now.

Thanks for the info. I now understand it works the same way for those types of properties as it does for homeowners who sell their residence and buy another residence. Seems fair to me.

I know if we sell our residence, the gain may be sheltered from capital gains tax if I buy a more expensive home. So far so good.

I understand that I cannot do the 1031 exchange with my residence.

Here is my question now. When I decide to sell my residence, instead of going into multiple list at 6%, can I have an exchange accomodator service find a buyer and sell to someone looking to buy my residence as an income producing asset? I know I have to "move up" or pay tax on the gains. But do I get to avoid the MLS fees?

Thanks!
s/Mike
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Old 09-28-2006, 07:29 AM
 
Location: ♥State of the heart♥
1,118 posts, read 4,596,916 times
Reputation: 863
Quote:
Originally Posted by Mike from back east View Post
Here is my question now. When I decide to sell my residence, instead of going into multiple list at 6%, can I have an exchange accomodator service find a buyer and sell to someone looking to buy my residence as an income producing asset? I know I have to "move up" or pay tax on the gains. But do I get to avoid the MLS fees?
Thanks!
s/Mike
Unless Colorado is different from NJ, and forgive me if I am passing on information that you are already aware of --- the 6% fee will be your Real Estate Agent's fee for selling your home. The Multiple Listing Service is basically for the notification of other agents that your home is for sale, and gives them an opportunity to bring in a buyer. There are no fees to the homeowner for the MLS.

Ordinarily, the Exchange Accomodator acts as a facilitator for an exchange only, not a sales agent. In other words, they are who the real estate agent hands your 1031 paperwork to, then the Exchange Accomodator (or title agency) sees to it that the proper government department receives your paperwork so it all goes through properly.

Therefore, you would need a Real Estate agent to market your property for sale as a "potential rental income producing" property.

Also, check the IRS tax code. Currently, we are allowed forgiveness on the capital gains of our primary residence that we have owned for at least 5 years, and have lived in for 2. You do not have to pay gains on $250,000, and if you are married and filing a joint tax return, that number is increased to $500,000. It is possible that the ruling is no longer in effect that you must "trade up." Many tax breaks went in under Reagan, Bush Sr., then revoked under Clinton, and changed again under Bush Jr. Much to keep up with in that department!

A good tax accountant, and/or a knowledgeable real estate agent will be able to give you the most in depth information. It is worth the homework!
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Old 09-28-2006, 07:51 AM
 
485 posts, read 1,408,708 times
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The information you gave about not paying taxes on $250K ($500K if MFJ) is still true. However, you don't have to have owned for 5 years, just lived in for 2 as primary residence. The five years comes in if you rented out a property that was your primary residence. Then it has to have been your primary residence for 2 of the last 5 years. Not sure if I explained that well enough but hopefully you get the point.

Last edited by marysally; 09-28-2006 at 07:53 AM.. Reason: correction
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Old 09-28-2006, 09:26 AM
 
Location: ♥State of the heart♥
1,118 posts, read 4,596,916 times
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Quote:
Originally Posted by marysally View Post
The information you gave about not paying taxes on $250K ($500K if MFJ) is still true. However, you don't have to have owned for 5 years, just lived in for 2 as primary residence. **The five years comes in if you rented out a property that was your primary residence. Then it has to have been your primary residence for 2 of the last 5 years. Not sure if I explained that well enough but hopefully you get the point.
Quite right! **A detail I forgot!
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Old 09-28-2006, 06:46 PM
 
Location: State of Bliss :-)
463 posts, read 1,594,103 times
Reputation: 164
Default 1031's

Quote:
Originally Posted by Mike from back east View Post
Can a realtor or smart person 'splain for us what these deals are all about?

Thanks!

s/Mike
Hi Mike,

I'm neither a realtor nor necessarily smart person but I did have to learn about 1031's and capital gains when selling our last home. The laws have changed. If it's your personal home that you're speaking of selling, you do not have to "buy up."

You do have to have lived in your present home a minimum of 2 years to be eligible for the up to 250 K in profit exemption ( no capital gains due) for a single person or up to 500K for a married couple. The IRS has loads of information on this and a simple google search should explain it well. If you're still lost, a good CPA should be able to explain it in about a 10 minute phone call Hey, if I can learn it anyone can :-)

Best Regards,

Cassie

Last edited by Cassie; 09-28-2006 at 07:17 PM..
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Old 08-14-2013, 06:10 AM
 
Location: Northern Maine
10,264 posts, read 17,187,877 times
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The key word in all this is "deferred". It is not tax free. You are pushing the tax into the future. However, there is a factor not mentioned so far. The properties involved must be income producing properties. Down the road a few years you could buy an apartment building on the beach. If you live in it for two years as your primary residence you can sell it with no tax liability.

Caution: Do it correctly. Your driver's license and many other documents must show this as your primary residence. Consult a tax attorney or CPA that knows this thoroughly.

Northern Maine Land Man
In our franchise of 35,000 brokers and agents I was #1 in the nation in commercial real estate - twice.
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Old 08-14-2013, 01:09 PM
 
Location: North Idaho
29,738 posts, read 40,633,094 times
Reputation: 67002
I don't think the depreciation clock starts over. It only starts fresh when you buy with new money.

Also, all the depreciation from every property in the string of 1031 exchanges has to be reclaimed and taxes paid on all like it is regular income.

1031 is only for investment property and does not apply to your personal residence.
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Old 08-14-2013, 01:29 PM
 
Location: El Dorado Hills, CA
3,724 posts, read 9,463,872 times
Reputation: 3903
Thread is 7 years old. They probably figured it out by now.
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