Real Estate Law

2 Make-or-Break Rules for a Successful 1031 Exchange

2 Make-or-Break Rules for a Successful 1031 Exchange

Perhaps you have heard the term 1031 or like-kind exchange, or maybe you have already gone through the process before. Either way, before you jump into your next exchange, make sure that you know how to do it and what the potential tax consequences are without a 1031 exchange.

When it comes to rental real estate, 1031 exchanges are a great tax deferral tool. A 1031 exchange allows you to essentially “trade up” one property for another. The value of the property and the gain that you would have paid taxes on the sale are reassigned to the replacement property and may be deferred until the replacement property is sold. However, the strategy is only effective if done the right way, and unfortunately that oftentimes does not happen. Let’s take a look at some of the rules.

Reverse 1031 News

Reverse 1031 News

A “reverse” exchange occurs when the taxpayer acquires the replacement property before transferring the relinquished property. A “pure” reverse exchange, where the taxpayer owns both the relinquished and replacement properties at the same time, is not permitted. As a workaround, enterprising taxpayers structure “parking” transactions. An accommodation party (“AP”) would acquire and hold the replacement property until the taxpayer could transfer the relinquished property in a customary forward exchange. A major challenge of the parking arrangement was to give the AP enough benefits and burdens of the parked property to be treated as the owner for federal income tax purposes.

4 Rules of a 1031 Exchange

4 Rules of a 1031 Exchange

Let’s say you’ve got yourself a rental property and you’ve worked hard to get rents up and keep expenses low. The property is profitable, and you are looking to trade up by selling it and buying a more expensive property. The problem is that if you sell, you will have to pay capital gains tax on the sale as you would with a fix and flip or wholesale deal. That tax could be a heavy hit if you have sold the property for a gain, and it will stunt your growth as an investor. What can you do?

The Closing Process: What Home Buyers Can Expect on the Big Day

The Closing Process: What Home Buyers Can Expect on the Big Day

The hardest parts are over: You’ve found that perfect home in a haystack of listings, negotiated a deal you’re happy with, and secured a mortgage—and you’re now in the home stretch of the home-buying process. Just one more critical hurdle lies ahead: the home closing. Also known as “settlement” or “escrow,” this is a day when all involved parties meet to make this transaction official.

To make sure you’re fully prepared, here’s what to expect from the closing process, step by step.