Section 1031, allows an investor of appreciated real estate to sell and transfer all of the gains from one property to another property or properties with the use of an intermediary which allows the seller to defer the tax. The properties exchanged must be held for productive use in a trade or business, or for investment.
The Internal Revenue Service issued Revenue Procedure 2000-37 on September 15, 2000, which provides a safe-harbor for how to properly structure a Reverse 1031 Exchange transaction. In a regular deferred exchange, an investor has 45 days to identify potential replacement property. Once the identification deadline passes, the investor is locked into that list of potential properties, and has to close on one or more of those properties within 180 days in order to complete a successful 1031 exchange. In a seller’s market with low inventory, these time frames can be very challenging. By contrast, a reverse exchange, allows an investor to take the time to find the perfect replacement property.
Uses a combination of tax law (IRC 453) and Trust Law. With this tool, taxation can be deferred on virtually any highly appreciated asset such as a personal residence, land, ranches, farms, investment properties, and even a vacation home. Livestock, crops, airplanes, collectibles can also be included. In addition, the money can be invested in the trust and the seller can now receive a taxable income flow from all of the proceeds and only pay taxes on the money received.
Don’t let the 45 days identification period stop you. Learn how to sell investment assets stress free while at the same time giving yourself an opportunity to capture the proceeds at peak value without risking paying taxes and then re-purchasing at a later date.
Revenue Ruling 2004-86 gave life to this structure. Tired of dealing with tenants, toilets, trash, taxes, termites, and turn over? Most people like these transactions because this structure allows you to get rid of all these traditional management issues of owning real estate while at the same time enabling you to keep all the same benefits of real estate ownership. Benefits such as appreciation, depreciation, step up in basis upon passing. Often times this is achieved, while at the same time increasing cash flow.
Thinking about selling your primary residence to downsize? The sale of highly appreciated real estate can potentially generate a large tax bill. However, tax free money may be trapped in your real estate as well. Use this strategy to capture the tax free money before the sale and then capture the capital gains tax deferred which can be used to improve your current income.
As a real estate owner, you often look for ways to increase revenue and maintain a steady cash flow. That includes working with a certified public accountant to increase your deductions during tax season. A cost segregation study is something you can perform on your property and then can give to your CPA who can use it to increase those deductions by reducing the number of years it takes to depreciate certain aspects of your real estate.
A Fee Simple Donation is a voluntary legal agreement that limits the use of land in order to protect it for future generations. This creates the opportunity to donate to a good cause and receive anywhere from a 4 to 1 up to 6 to 1 tax write off for up to 30% of your AGI.
The Tax Cuts and Jobs Act of 2017 established Opportunity Zones as a mechanism to provide tax incentives for investment in designated census tracts. Investments made by individuals through special funds in these zones would be allowed to defer or eliminate federal taxes on capital gains.
Parents get older, they may need to move to costly assisted living. Once savings is depleted, the family begins to consider using equity in the family home to pay these expenses. This could mean paying 30% to 50% of the gains in taxes. Most people are not aware of the tax deferral options available.
An Historical Preservation Easement is a real estate investment in an historical building on the National Historical Register. This creates the opportunity to gain a $2.5 tax deduction for every dollar invested for up to 50% of your AGI.
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