Posted on 07/28/2010 5:49:29 PM PDT by Chickensoup
I am selling a piece of investment property. I need to do a 1031 exchange. The world markets are shaky and veer towards inflation and deflation. What kind of 1031 investment is out there that can shield a sudden value rupture?
Refresh my memory. 1031 exchange is in simple terms exchanging like item (whatever that is) for like item or equal value.
Is my recollection correct?
If that’s it, what is your motivation for doing this as apposed to selling outright? Is your feeling you are getting a better deal?
Just wondering. I have never known anyone who engaged in this kind of transaction, so bottom line I am of no help here.
>> What kind of 1031 investment is out there that can shield a sudden value rupture?
“heck if I know” bookmark ping — I want to see what financially astute FReepers come up with
You might be able to 1031 into a triple net lease building like a CVS lease building or something. It will have to a have a close value. medical real estate used to be safe but I would not bet on it after ObamaCare.
In order not to pay gigantic taxes the government allows one to take the amount one gets when selling a property and shield it n a 1031 and reinvest it in equal or greater value properties within a 60 or 90 day time period.
Thanks for the additional information. Good luck.
I am intersted in short term hold, not the long term. I have a property I want to buy that will hold value.
Real estate is not really a short term hold. Triple net leased buildings with long-term leases may hold their value better than other real estate.
You are right, but I need to find a 1031 holding spot until the second transaction is completed.
Set up a reverse exchange so you lock up the new replacement property. In this market it is probably more difficult to buy instead of sell.
If you already have cash, do what is called an exchange first reverse, where your Intermediary will hold title until the old relinquished property sells.
If you cannot sell within the 180 day exchange window, the Intermediary will simply deed the new property to you and you will not have done an exchange.
The cost will not be cheap. Probably north of $5,000, but it is good insurance if:
A) You like the replacement property and it is worth acquiring regardless, and
B) If you do sell, you will be positioned to defer the gain into the new property.
Capital gain rates are 15% now and will be at least 20 to 24% later. Consider paying tax instead of deferring.
pay the 15% cap gains it won’t be that low for awile. Wait and steal some property on your time table.
I am selling got the contract, I have a new property.
capital gains are peanuts. It is the depreciation that kills. I would only realize one third.
I’m sorry, I must have misunderstood. If you have a Buyer just forward exchange normally into a replacement.
There are TIC (tenant in common) replacement properties which qualify for deferred gain treatment, if you cannot swing a regular triple net deal.
The best TICs are sold as securities, but require a lot of diligence in order to get a good one.
If you have a mortgage over basis situation or refuse to pay gain tax, then do an exchange. However, sometimes just paying the tax now is really good advice.
Unfortunately depreciation recapture is 25%, not 15% like cap gains.....That must be what hard to swallow..
But I understand that the forwarding requires a stop in the TIC. The quality and safety of the TIC is the issue. Seems as though everyone on the net does 1031. How does one choose a wise safe one that can hold firm despite sudden inflation....I could live with a little deflation during the exchange...LOL
I am looking at least at 40% plus state and city tax.
Ba****ds!
You nailed the trouble. Way too many TICs are over priced and laden with hidden fees which have been added along the way by sponsors.
Since real estate generally has been rocked it will be hard to find one which will perform to your expectations.
If you have enough dough, buy your own triple net property with a credit tenant. That way you have no partners as you would in a TIC, and the upside is more assured because of the good tenant.
Can you swing a Burger King or similar NNN property?
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