Creative Reasons to use a 1031 Exchange
Deferring capital gains tax is the primary reason most investors use a 1031 Exchange. Who can argue with that? It really is a great reason, but it is not the only reason to use a 1031 Exchange.
Maybe the investor is hoping to put their equity to work for them and desires to own multiple income producing properties. One way to achieve this is to use the equity from a single relinquished property and replace it with 2 or 3 income producing properties. Not only is there the possibility of multiple income streams but this also reduces the exposure should an issue arise (high vacancy rate, etc.) with one of the properties.
What about the investor who no longer desires to be a landlord. A 1031 Exchange would provide the opportunity to exchange an apartment complex for a large parcel of raw land in a high growth area. Another benefit of a 1031 Exchange is to allow the owner of a single investment property to purchase multiple investment properties for his or her heirs avoiding a possible family eruption if a single property was to be divided among multiple individuals.
When making the decision to sell an investment property don't hesitate to ask your REALTOR for creative suggestions on the replacement purchase. If you are interested in learning about the advantages of a 1031 Exchange, please visit http://www.myaz1031.com/ for an overview and to request more information. If you or your organization would like a presentation on 1031 Exchange, feel free to contact me. Programs vary in length from 50 minutes to 3 hours.
Copyright 2006. Tracy Thompson is a member of the National Association of Realtors, The Arizona Association of Realtors and the Glendale Board of Realtors. To find out more about home buying and selling, contact Tracy at 623-326-0597 or email Tracy@TalkToTracyHomes.com. http://www.azhomebuyerhelp.com/
Sunday, July 30, 2006
Sunday, July 23, 2006
1031 Exchange Basics
1031 Exchange Basics
1031 Exchange Basics
The rules for a 1031 Exchange are complex. This is a basic overview with the understanding that each transaction is different. When assembling your 1031 Exchange team, a CPA is a must to ensure your individual situation is accurately addressed. That being said, the basic rules are always the same.
1) Only investment properties qualify for 1031 exchanges, not personal residences. 2) You have 45 days from the date of transfer of the relinquished property to identify replacement property. No exceptions. 3) The exchange must be completed within 180 days or the tax due date. For this reason, exchanges initiated after October 15 require exceptional vigilance.
Once you have decided to sell a qualified property, contact your CPA and a REALTOR with 1031 Exchange experience. Both are vital to a successful transaction. The CPA will be able to advise you of your current financial situation and help you chart a path for the future. The REALTOR will be able to assist you with the proper documentation and guide you through the steps involved. He or She can also help you select a 1031 Exchange Qualified Intermediary (QI). Replacement PropertyThere are no limits on the value or number of properties that may be relinquished in an exchange.
There are limitations on how many replacement properties may be identified. One of the following three rules must be adhered to.
Three Property Rule
A maximum of three properties may be identified without regard to the fair market value (FVM) of the replacement properties.
200 Percent Rule
Any number of properties may be identified as long as the aggregate value does not exceed 200% of the relinquished property.
95 Percent Rule
Any number of properties may be identified if, by the end of the exchange period (180 days), the aggregate market value of acquired property is at least 95% of the aggregate market value of all properties identified.
Properties for replacement must be identified in writing on or before the end of the 45 day identification period. I will discuss more about documenting your exchange and holding periods in the next post.
If you would like more information on 1031 Exchange or the current Phoenix real estate market you can contact me Tracy Thompson 623-326-0597, Tracy@TalkToTracyHomes.com or visit my website http://www.AZHomeBuyerHelp.com
1031 Exchange Basics
The rules for a 1031 Exchange are complex. This is a basic overview with the understanding that each transaction is different. When assembling your 1031 Exchange team, a CPA is a must to ensure your individual situation is accurately addressed. That being said, the basic rules are always the same.
1) Only investment properties qualify for 1031 exchanges, not personal residences. 2) You have 45 days from the date of transfer of the relinquished property to identify replacement property. No exceptions. 3) The exchange must be completed within 180 days or the tax due date. For this reason, exchanges initiated after October 15 require exceptional vigilance.
Once you have decided to sell a qualified property, contact your CPA and a REALTOR with 1031 Exchange experience. Both are vital to a successful transaction. The CPA will be able to advise you of your current financial situation and help you chart a path for the future. The REALTOR will be able to assist you with the proper documentation and guide you through the steps involved. He or She can also help you select a 1031 Exchange Qualified Intermediary (QI). Replacement PropertyThere are no limits on the value or number of properties that may be relinquished in an exchange.
There are limitations on how many replacement properties may be identified. One of the following three rules must be adhered to.
Three Property Rule
A maximum of three properties may be identified without regard to the fair market value (FVM) of the replacement properties.
200 Percent Rule
Any number of properties may be identified as long as the aggregate value does not exceed 200% of the relinquished property.
95 Percent Rule
Any number of properties may be identified if, by the end of the exchange period (180 days), the aggregate market value of acquired property is at least 95% of the aggregate market value of all properties identified.
Properties for replacement must be identified in writing on or before the end of the 45 day identification period. I will discuss more about documenting your exchange and holding periods in the next post.
If you would like more information on 1031 Exchange or the current Phoenix real estate market you can contact me Tracy Thompson 623-326-0597, Tracy@TalkToTracyHomes.com or visit my website http://www.AZHomeBuyerHelp.com
What is a 1031 Exchange?
What is a 1031 Exchange
What is a 1031 Exchange?
Tax Code Section 1031 allows real estate investors to sell property that has been held for investment or productive use in trade or business and defer capital gains and depreciation recapture taxes if they acquire “like-kind” property of equal or greater value and reinvest all of their equity. The fundamental principle is to permit the property owner to continuing investing and defer taxes that would normally be due on the gain from the sale.
Advantages of a 1031 Exchange:
- Properties that have been held for an extended period of time and are “tax-locked” can be freed up.
- Deferred capital gains tax
- Money available for reinvestment instead of going toward taxes
- Heirs can receive a stepped-up tax basis equivalent to fair market value
Basic Rules of a 1031 Exchange:
- Properties must be exchanged for ‘like-kind’ property
- Property must be held for investment or productive use in trade or business
- Replacement property must be identified within 45 days
- Exchange must be completed within 180 days or the tax dues date, whichever is earlier
In the next post, I will describe the basic steps to a 1031 Exchange.
If you would like more information on 1031 Exchange or the current real estate market you can contact me Tracy Thompson 623-326-0597, Tracy@TalkToTracyHomes.com or visit my website http://www.AZHomeBuyerHelp.com
What is a 1031 Exchange?
Tax Code Section 1031 allows real estate investors to sell property that has been held for investment or productive use in trade or business and defer capital gains and depreciation recapture taxes if they acquire “like-kind” property of equal or greater value and reinvest all of their equity. The fundamental principle is to permit the property owner to continuing investing and defer taxes that would normally be due on the gain from the sale.
Advantages of a 1031 Exchange:
- Properties that have been held for an extended period of time and are “tax-locked” can be freed up.
- Deferred capital gains tax
- Money available for reinvestment instead of going toward taxes
- Heirs can receive a stepped-up tax basis equivalent to fair market value
Basic Rules of a 1031 Exchange:
- Properties must be exchanged for ‘like-kind’ property
- Property must be held for investment or productive use in trade or business
- Replacement property must be identified within 45 days
- Exchange must be completed within 180 days or the tax dues date, whichever is earlier
In the next post, I will describe the basic steps to a 1031 Exchange.
If you would like more information on 1031 Exchange or the current real estate market you can contact me Tracy Thompson 623-326-0597, Tracy@TalkToTracyHomes.com or visit my website http://www.AZHomeBuyerHelp.com
Friday, July 21, 2006
Foreclosures
Facing Foreclosure?
Foreclosures
I receive a lot of calls from people wanting to purchase foreclosure properties. For me, I cannot hear the word foreclosure without feeling a pang of sadness. Homeownership embodies the American Dream. Although the “white picket fence” is a rare find in the desert, those wishing to achieve the American dream, are not. Today we are going to take a quick look at the foreclosure process. There is no way I can possibly explore everything about foreclosures, so this will be a very brief overview.
Foreclosure is the legal process reserved by a lender to terminate the borrower's interest in a property after a loan has been defaulted. The foreclosure process in Arizona starts with the Notice of Trustee's Sale (NTS). When the process is completed, the lender may sell the property and keep the proceeds to satisfy its mortgage and any legal costs. Any excess proceeds may be used to satisfy other liens or be returned to the borrower. The Trustee shall give written notice of the time and place of sale legally describing the trust property to be sold by each of the following methods: Publication of the notice in a general circulation newspaper, posting of the notice on a conspicuous place on the property to be sold, recording of the notice with the county recorders office. By the time the NTS is advertised in the newspaper, you are already six weeks into the foreclosure process.
Prior to the actual trustee’s sale, the borrower has options to explore that could prevent the foreclosure process and potentially keep their credit from being permanently damaged. For most homeowners, facing the loss of their home is devastating and many choose to ignore the situation rather then explore the avenues available to avoid foreclosure.
Selling a home is an alternative for borrowers that are unable to reinstate the loan and face eminent foreclosure. This option allows a home owner to try to salvage his or her credit, pay off the loan, and retain any remaining equity in the home. By informing the lender of this option, the lender may delay the foreclosure proceedings in order to allow sufficient time to sell the home.
In certain cases, the lender may allow the borrower to sell the home when the proceeds from the sale are not sufficient to pay off the existing loan. This is known as a short sale. A borrower should check with his or her lender to discuss this option. Furthermore, the borrower may have to pay taxes on any loss the lender writes off from the short sale. A borrower should consult his or her tax professional before agreeing to a short sale.
If Keeping Your Home Is Not An Option -- Call Your Lender
Sale: If you can no longer afford your home, your lender will usually agree to give you a specific amount of time to find a purchaser and pay off the total amount owed. You will be expected to obtain the services of a real estate professional who can aggressively market the property.
Pre-Foreclosure Sale or Short Payoff: If the property's sales value is not enough to pay the loan in full, your lender may be able to accept less than the full amount owed. This option can also include a period of time to allow your real estate agent to market the property and find a qualified buyer. Monetary help may also be available to pay other lien holders and/or help toward paying a few moving costs.
Assumption: A qualified buyer may be allowed to assume your mortgage, even if your original loan documents state that it is non-assumable.
Deed-in-lieu: Your lender may agree to allow you to voluntarily "give back" your property and forgive the debt. Although this option sounds like the easiest way out for you, generally, you must attempt to sell the home for its fair market value for at least 90 days before the lender will consider this option. Also, this option may not be available if you have other liens such as judgments of other creditors, second mortgages, and IRS or State Tax liens.
If you would like more information about foreclosures please contact Tracy Thompson 623-326-0597. Copyright 2006. Tracy Thompson is a member of the National Association of Realtors, The Arizona Association of Realtors and the Glendale Board of Realtors. To find out more about home buying and selling, contact Tracy at 623-326-0597 or email Tracy@TalkToTracyHomes.com. http://www.AZHomeBuyerHelp.com
Foreclosures
I receive a lot of calls from people wanting to purchase foreclosure properties. For me, I cannot hear the word foreclosure without feeling a pang of sadness. Homeownership embodies the American Dream. Although the “white picket fence” is a rare find in the desert, those wishing to achieve the American dream, are not. Today we are going to take a quick look at the foreclosure process. There is no way I can possibly explore everything about foreclosures, so this will be a very brief overview.
Foreclosure is the legal process reserved by a lender to terminate the borrower's interest in a property after a loan has been defaulted. The foreclosure process in Arizona starts with the Notice of Trustee's Sale (NTS). When the process is completed, the lender may sell the property and keep the proceeds to satisfy its mortgage and any legal costs. Any excess proceeds may be used to satisfy other liens or be returned to the borrower. The Trustee shall give written notice of the time and place of sale legally describing the trust property to be sold by each of the following methods: Publication of the notice in a general circulation newspaper, posting of the notice on a conspicuous place on the property to be sold, recording of the notice with the county recorders office. By the time the NTS is advertised in the newspaper, you are already six weeks into the foreclosure process.
Prior to the actual trustee’s sale, the borrower has options to explore that could prevent the foreclosure process and potentially keep their credit from being permanently damaged. For most homeowners, facing the loss of their home is devastating and many choose to ignore the situation rather then explore the avenues available to avoid foreclosure.
Selling a home is an alternative for borrowers that are unable to reinstate the loan and face eminent foreclosure. This option allows a home owner to try to salvage his or her credit, pay off the loan, and retain any remaining equity in the home. By informing the lender of this option, the lender may delay the foreclosure proceedings in order to allow sufficient time to sell the home.
In certain cases, the lender may allow the borrower to sell the home when the proceeds from the sale are not sufficient to pay off the existing loan. This is known as a short sale. A borrower should check with his or her lender to discuss this option. Furthermore, the borrower may have to pay taxes on any loss the lender writes off from the short sale. A borrower should consult his or her tax professional before agreeing to a short sale.
If Keeping Your Home Is Not An Option -- Call Your Lender
Sale: If you can no longer afford your home, your lender will usually agree to give you a specific amount of time to find a purchaser and pay off the total amount owed. You will be expected to obtain the services of a real estate professional who can aggressively market the property.
Pre-Foreclosure Sale or Short Payoff: If the property's sales value is not enough to pay the loan in full, your lender may be able to accept less than the full amount owed. This option can also include a period of time to allow your real estate agent to market the property and find a qualified buyer. Monetary help may also be available to pay other lien holders and/or help toward paying a few moving costs.
Assumption: A qualified buyer may be allowed to assume your mortgage, even if your original loan documents state that it is non-assumable.
Deed-in-lieu: Your lender may agree to allow you to voluntarily "give back" your property and forgive the debt. Although this option sounds like the easiest way out for you, generally, you must attempt to sell the home for its fair market value for at least 90 days before the lender will consider this option. Also, this option may not be available if you have other liens such as judgments of other creditors, second mortgages, and IRS or State Tax liens.
If you would like more information about foreclosures please contact Tracy Thompson 623-326-0597. Copyright 2006. Tracy Thompson is a member of the National Association of Realtors, The Arizona Association of Realtors and the Glendale Board of Realtors. To find out more about home buying and selling, contact Tracy at 623-326-0597 or email Tracy@TalkToTracyHomes.com. http://www.AZHomeBuyerHelp.com
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