1031 do's & dont's
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1031 do's & dont's (by NE [PA]) May 23, 2019 11:32 AM
       1031 do's & dont's (by myob [GA]) May 23, 2019 11:57 AM
       1031 do's & dont's (by S i d [MO]) May 23, 2019 1:22 PM
       1031 do's & dont's (by Beth [WI]) May 23, 2019 1:30 PM
       1031 do's & dont's (by Kim [TX]) May 23, 2019 2:05 PM
       1031 do's & dont's (by fred [CA]) May 23, 2019 2:35 PM
       1031 do's & dont's (by John... [MI]) May 23, 2019 3:43 PM
       1031 do's & dont's (by RB [MI]) May 23, 2019 4:04 PM
       1031 do's & dont's (by Robert J [CA]) May 23, 2019 9:19 PM
       1031 do's & dont's (by CX [WA]) May 24, 2019 2:51 AM

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1031 do's & dont's (by NE [PA]) Posted on: May 23, 2019 11:32 AM

i'm looking at possibly doing my first 1031 exchange. I may be selling a three unit property and will end up with substantial profit. I either need to take the after-tax profit and pay off one of my larger mortgages on one of my properties to maintain my cash flow base or take the full profit with a 1031 and buy a new building. Any pointers on this would be greatly appreciated. Thank you


1031 do's & dont's (by myob [GA]) Posted on: May 23, 2019 11:57 AM

I've sold many and never used 1031's. I like the idea of paying off-- but you need to calculate the ROI. Is there someplace you could make more-- other than return on pay off?

With SFH's it's somewhat different calculation. For ex. Paying off 3 as opposed to say 1 home. You have to calculate the increased return but still have the other operating expenses-- taxes ins etc.. Need to know which properties are increasing more in value and potential rental income increase for different areas of town.

What's the up value on multi units values? --99.103.xxx.xxx

1031 do's & dont's (by S i d [MO]) Posted on: May 23, 2019 1:22 PM

Keep in mind that all a 1031 does is DEFER taxes; it does not ELIMINATE them. So if you have a $200,000 property and $100,000 in accumulated deprecation and roll that into another property valued at $400,000...your basis will be $400,000 LESS the $100,000 accumulated on the old property. So you only get to depreciate the $300,000. Depreciation recapture is the same rate (25%) regardless.

So if you 1031 with the intention of cashing out somewhere later down the line you will still pay the full amount due ...just not today. Depreciation recapture rates could go up or down, depending on the politics of the day.

6 of one, half a dozen of the other.

Bottom line: Don't be too quick and overpay on something else just to keep from paying taxes, but if you can find a really good steal, then it would be worthwhile redeploying that capital where it can generate a higher rate of return. --173.20.xxx.xxx

1031 do's & dont's (by Beth [WI]) Posted on: May 23, 2019 1:30 PM

You do NOT have to purchase a new property that is more expensive than the one you sell. If you downsize, you only pay taxes, depreciation on the difference. For example, sell property at 100k, buy exchange property at 90k. You will be only be required to pay 1/10 the capital gains and depreciation recapture.

So you could purchase a cheaper property and also whittle down a mortgage if that makes sense in your situation.

Also line up your exchange company ahead of time as your are not allowed to have even one cent deposited in any of your accounts.

I was able to talk to an exchange attorney through the company I used without any additional charges. --47.12.xxx.xx

1031 do's & dont's (by Kim [TX]) Posted on: May 23, 2019 2:05 PM

Review closing docs on all transactions carefully. Some expenses typically listed on closing statements are not allowed on a 1031 exchange (like pro-rata share of property taxes)and should be handled separately. My experience has been that that title companies wring their hands over this, and seem to know nothing about it. Your Exchange company won't be responsible for it either. --23.30.xx.xxx

1031 do's & dont's (by fred [CA]) Posted on: May 23, 2019 2:35 PM


Read Sid's reply twice.

Nobody has as much patience as Uncle Sam when it comes to collecting taxes. --99.59.x.xxx

1031 do's & dont's (by John... [MI]) Posted on: May 23, 2019 3:43 PM

Sid is right -- with one exception... If you plan to DIE with the properties and leave them to your heirs, then Uncle Sam basically never gets the taxes.

The heirs that inherit the property get a new basis based on the current market value. The gain from when you had it and did the 1031 exchange basically just goes away. No one pays it.

So, in the case where you plan to do 1031 exchanges into other properties and then hold onto whatever the last one is (or last ones are if you have multiple) until you die -- then it makes a lot of sense.

For me, personally, like Sid said, I'd probably pay it now unless the deal made an exceptional amount of sense to defer it. (Again, assuming that I'm not planning to die with the last property(s).

- John...


1031 do's & dont's (by RB [MI]) Posted on: May 23, 2019 4:04 PM

Pay down debt. --184.53.x.xx

1031 do's & dont's (by Robert J [CA]) Posted on: May 23, 2019 9:19 PM

Depending on how much profit you plan to make, the Long Term Federal Capital Gains Tax can be as high as 20%. Then there's the State Tax, Depreciation Recapture (25%) and Affordable Care Health Tax at 3.8%. So if you sell an pay the taxes, you will have only 65-70% of your profit in hand to pay off another property's mortgage. --47.156.xx.xx

1031 do's & dont's (by CX [WA]) Posted on: May 24, 2019 2:51 AM

Approach the seller of the new property as a cash buyer, but don't tell them it's a 1031. They may start to play games with you as they sense your 1031 deadline for closing is drawing near. --71.212.xxx.xxx

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