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As many of you might know if you have a property (not your home) for sale and the profits would be devoured by taxes, you can do an 1031 exchange and buy similar properties and defer all the tax.
You need a Qualified Intermediary There are lots of companies but many seem to have hidden fees.
One I contacted said (Hetsler) said $675 no hidden fees but after I paid say that each purchase of a property will cost $250 more. I have a fairly large one and may purchase 10 properties.
Question: Has the property been used as a rental bringing in income. If he answer is yes, it can be a 1031 exchange. If not it cannot be. Only homes that have held for income for a period of time, can be exchanged on a 1031 tax deferred exchange. I spent from 1972 till I finally retired, and 1031 exchanges were my specialty.
What you are talking about is a Starker Exchange. You can also exchange directly for other property you want to acquire and you do not have to pay the facilitator $675 plus $250 per property. As you want to acquire numerous properties, it is often possible to make a direct exchange with someone with several rentals, they will exchange you for one property if your property is easy to sell. In fact the sale could close at the same time as you make the exchange. I did numerous exchanges that were not in one city, or even in the United States. But you need a specialist to help you not house sales people who do not know what I am talking about. Find a good specialist that has connections around the country.
Find a good real estate exchange specialist if you want to do a 1031 either a direct exchange or a Starker Exchange. Someone that knows what they are doing. And if it is a direct exchange there are no intermediary costs.
You can let your specialist find a number of properties you want, and put together a multiple party exchange and buy out at the same time. Residential real estate agents, only know how to go the Starker route, but an exchange specialist can go other routs that can be of great benefit to you. Exchangers belong to exchange groups, where they meet and help each other find what is needed done, which regular residential salespeople do not have the connection.
One time my wife and I went to a national meeting in Las Vegas where there were 2,000 exchangers meeting. I presented on property, and my wife presented on that was clear across the state. It was a large mobile home park. She stood in front of those people, and each had a copy of a package on the property. After her presentation she went into the other room where there were tables to discuss with anyone interested. We wanted to move the equity from Colorado to Southern Arizona. We had over 20 people around the table. They went home and the following Monday we started getting calls. Two of them wanted to know if their client could buy for cash with a large down payment and the owner carry a mortgage. Of course they could, as we could make it an exchange with the cash and mortgage to be used to purchase other income property all to close at the same time structured as an exchange. They started sending contracts, and we got into a big bidding war, with the extra money more than covered the capital gains taxes. After 2 weeks, we went under contract. Both were working in California, and the town this park was located in, was where both were planning on retiring in less than 10 years. We closed, and I went to Arizona and bought them other properties. I made pretty good money on that deal. It could not have been done by a residential salesman/woman.
If you want to do something and end up with a 1031 exchange, don't work with residential salespeople, work with specialist.
My client in the above example acquired that park 2 years before, and due to a health problem requiring them to move away from the snow they had to go south. I had exchanged 6 rental units as a down payment on that R.V. park and we got it real, real cheap as it had been on the market unsold for over 2 years listed by a residential salesperson. We not only exchanged if for a big profit but far more than we dreamed to get for it. The extra money, actually paid their capital gains taxes.
Oldtrader, I thought the point was to avoid capital gains taxes (until sometime in the distant future). So why do you emphasize that the extra money paid for capital gains?
Oldtrader, I thought the point was to avoid capital gains taxes (until sometime in the distant future). So why do you emphasize that the extra money paid for capital gains?
There is a time that you can avoid capital gains taxes, and a time that it is better to take the cash and pay the taxes. An exchange is a great way to go many time and avoid capital gains taxes (deferring them), and there are times it can be to your advantage to sell, and pay the taxes.
When buyers were willing to pay enough above the properties value, that the extra money would pay the capital gains taxes it can be smart to take that route, and use the cash to acquire property that was not available for exchange, and could be bought at a price that was to your advantage.
If a person gets so hung up and will do anything to avoid capital gains taxes, they sometimes make very stupid moves. Each move you make, has to be made concerning the quality of the investment, the financial advantages of making the move, and what is the best move concerning taxes. Avoiding capital gains taxes, is not always the best way of doing things.
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