1031
Click here for Top Ten Discussions. CLICK HERE for Q & A Homepage
Receive Free Rental Owner Updates Email:  
MrLandlord Q & A
     
     
1031 (by Ken [NY]) Dec 1, 2023 10:15 AM
       1031 (by Robert J [CA]) Dec 1, 2023 11:00 AM
       1031 (by S i d [MO]) Dec 1, 2023 11:45 AM
       1031 (by S i d [MO]) Dec 1, 2023 11:46 AM
       1031 (by S i d [MO]) Dec 1, 2023 11:46 AM
       1031 (by S i d [MO]) Dec 1, 2023 12:10 PM
       1031 (by S i d [MO]) Dec 1, 2023 12:14 PM
       1031 (by Kim [TX]) Dec 1, 2023 2:51 PM
       1031 (by tryan [MA]) Dec 1, 2023 3:58 PM
       1031 (by tryan [MA]) Dec 1, 2023 4:43 PM
       1031 (by 6x6 [TN]) Dec 1, 2023 7:54 PM
       1031 (by 6x6 [TN]) Dec 1, 2023 8:18 PM
       1031 (by don [PA]) Dec 2, 2023 1:17 AM
       1031 (by BRAD 20,000 [IN]) Dec 2, 2023 1:31 AM
       1031 (by S i d [MO]) Dec 2, 2023 11:32 AM
       1031 (by Ray-N-Pa [PA]) Dec 2, 2023 11:59 AM
       1031 (by Ray-N-Pa [PA]) Dec 2, 2023 12:02 PM
       1031 (by 6x6 [TN]) Dec 2, 2023 12:41 PM
       1031 (by WMH [NC]) Dec 2, 2023 5:45 PM
       1031 (by BRAD 20,000 [IN]) Dec 2, 2023 9:48 PM
       1031 (by Ray-N-Pa [PA]) Dec 4, 2023 6:19 PM

Click here to reply to this discussion.
Click Here to send this discussion to a friend

1031 (by Ken [NY]) Posted on: Dec 1, 2023 10:15 AM
Message:

When you do a 1031 exchange i understand you buy another like kind property and avoid a tax bill,what happens when you eventually decide to sell and not buy another? will you be paying taxes on those exchanges? you could end up with a tax bill larger than the sale of the house? if this is correct you basically have to keep them till you die and pass it on? --74.77.xx.xx




1031 (by Robert J [CA]) Posted on: Dec 1, 2023 11:00 AM
Message:

Yes, at some point you will pay your taxes. However look at 1 example of mine.

Purchased in 1978 a 3 bedroom pool home for $72,000, putting only $15,000 as a down payment.

Then in 1986 I sold that property for $192,000 and netting $125,000 -- held by an accommodator for a 1031 exchange.

Did a 1031 exchange into a 5 +3 homes for $210,500. I put all of the $192,000 into that home and then after the completion of the 1031 exchange, did a re-fi and pulled out $79,000 -- going into my pocket tax free at the moment.

Held that home until 2019, selling it for $600,000. I paid recapture, federal and state taxes plus the California Medical Tax. Around $200,000 in all taxes. BUT I still had that $79,000 from the exchange years before that I used to purchase another property, and that one was an apartment house that I sold and made $800,000, but also did a 1031 into a property, that I converted over time as my second home, tax free... --47.155.xx.xxx




1031 (by S i d [MO]) Posted on: Dec 1, 2023 11:45 AM
Message:

Ken, several questions there to answer, so I'll take them one at a time. I've done three 1031 exchanges recently, just to give you a glimpse as to my familiarity with the topic.

When you sell a property, normally you would pay both the depreciation recapture and the capital gains on or before April 15th of the following year. What the 1031 does is put an indefinitely hold on the payment of that tax. You will need to use what is called a "Qualified Intermediary" to file the appropriate paperwork. At the time of the sale, they will gather all the data including your sale price, property basis, etc to calculate the amount of tax that would have been owed, then the file that information with the IRS to carry forward onto the new property. Somewhere down the road when you sell that property, then that document will come forth once more to be included in the calculations for the tax owed.

I believe though you can escape the tax using the stepped up asset basis when you will the property to your heir(s). I have not tested that personally, but a good real estate investor CPA would probably know.

--184.4.xx.xx




1031 (by S i d [MO]) Posted on: Dec 1, 2023 11:46 AM
Message:

Ken, several questions there to answer, so I'll take them one at a time. I've done three 1031 exchanges recently, just to give you a glimpse as to my familiarity with the topic.

When you sell a property, normally you would pay both the depreciation recapture and the capital gains on or before April 15th of the following year. What the 1031 does is put an indefinitely hold on the payment of that tax. You will need to use what is called a "Qualified Intermediary" to file the appropriate paperwork. At the time of the sale, they will gather all the data including your sale price, property basis, etc to calculate the amount of tax that would have been owed, then the file that information with the IRS to carry forward onto the new property. Somewhere down the road when you sell that property, then that document will come forth once more to be included in the calculations for the tax owed.

I believe though you can escape the tax using the stepped up asset basis when you will the property to your heir(s). I have not tested that personally, but a good real estate investor CPA would probably know.

--184.4.xx.xx




1031 (by S i d [MO]) Posted on: Dec 1, 2023 11:46 AM
Message:

Ken, several questions there to answer, so I'll take them one at a time. I've done three 1031 exchanges recently, just to give you a glimpse as to my familiarity with the topic.

When you sell a property, normally you would pay both the depreciation recapture and the capital gains on or before April 15th of the following year. What the 1031 does is put an indefinitely hold on the payment of that tax. You will need to use what is called a "Qualified Intermediary" to file the appropriate paperwork. At the time of the sale, they will gather all the data including your sale price, property basis, etc to calculate the amount of tax that would have been owed, then the file that information with the IRS to carry forward onto the new property. Somewhere down the road when you sell that property, then that document will come forth once more to be included in the calculations for the tax owed.

I believe though you can eliminate the tax accrual using the stepped up asset basis when you will the property to your heir(s). I have not tested that personally, but a good real estate investor CPA would probably know.

--184.4.xx.xx




1031 (by S i d [MO]) Posted on: Dec 1, 2023 12:10 PM
Message:

Sorry for the triple post... site wasn't giving any feedback, and in the past that has meant the post wasn't going through. --184.4.xx.xx




1031 (by S i d [MO]) Posted on: Dec 1, 2023 12:14 PM
Message:

P.S. Without meaning to hijack your post, I too have a question if anyone even more familiar with 1031s chimes in...

Let's say you do a 1031 today. 30 years from now, you decide to sell that property. How does the IRS know you're selling it? Just through the normal processes that a title company would handle? What if you use a private lawyer to handle everything?

I'm not trying to defraud the Govt (perish the thought!), but I was just curious how the process goes on that. Didn't know if the IRS basically just trusts people to do the right thing to remember to file the paperwork, or if they have some kind of system that tracks these. Or if the humungous profit from a sale would trigger an audit which would then reveal the source of the income, which would cause the auditor to ask if there had been a 1031, etc. --184.4.xx.xx




1031 (by Kim [TX]) Posted on: Dec 1, 2023 2:51 PM
Message:

Sid, Yes I'm pretty sure that if you die your heirs inherit your exchange property at a stepped-up basis.

When you sell, the escrow company files a form with the IRS to make sure you do what your supposed to do! --50.230.xxx.xxx




1031 (by tryan [MA]) Posted on: Dec 1, 2023 3:58 PM
Message:

Couple points ... "like kind" is EXTREMELY loose. If LAND is being swapped it's "like kind". I did a 1031 with a duplex in the hood for 2 acres of land front land.

Secondly , yeah taxes will be paid on the rolled over wad if sold. --198.168.xx.xxx




1031 (by tryan [MA]) Posted on: Dec 1, 2023 4:43 PM
Message:

lake front land --198.168.xx.xxx




1031 (by 6x6 [TN]) Posted on: Dec 1, 2023 7:54 PM
Message:

Good question Ken. I have often wondered the same.

I bet Ray knows the answer. I can't wait to see what he says, and he handles the situation. --73.190.xxx.xxx




1031 (by 6x6 [TN]) Posted on: Dec 1, 2023 8:18 PM
Message:

Last sentence should be: ...and how he handles the situation. --73.190.xxx.xxx




1031 (by don [PA]) Posted on: Dec 2, 2023 1:17 AM
Message:

Sid---how does the gov't know when you sell any property, 1031 exch. or not? Same way for 1031 exch. Even if the title company did not notify the IRS, what are you gonna do with the check for hundreds of thousands of dollars? Take it to Switzerland? Cash it at the corner check cashing place and bury the money?

Used to be that out of state sellers could beat the state tax in NJ on the profit from a NJ sale because the state had no knowledge of the sale and the seller would not normally have any contact with NJ Dept. Rev. NJ passed a law requiring title companies to notify the state. --73.141.xxx.xxx




1031 (by BRAD 20,000 [IN]) Posted on: Dec 2, 2023 1:31 AM
Message:

Ken,

I have been taught the tax bill for depreciation recapture and capital gains rolls into the next property. I buy the replacement property with pre tax dollars. Increases my buying power by 37% each time.

Keep leap frogging to better props, most recently 5 junkers I bought back when for $20-30k each, ($150k max invested, now worth $256) into one really nice $256k executive home for easier management and more profit.

An upcoming 1031 will be into triple net commercial. I plan to keep it forever and enjoy the easy income as I age even if in a nursing home. Much different than renting and flipping. My children will inherit it at the stepped up basis and can sell it without any taxes or keep it for the income.

If I want a chunk of cash I can sell off a prop or two and pay the taxes, but I HOPE they are worth much more than I paid for them like my previous example.

Plus I can cash out my Roth 401k tax free.

I compare this to my friend who is a pro flipper. He pays 30+% tax on each flip. If he clears $30k on his WORK flipping, he only keeps $20k. Doing a lot of work for the govt. No leap frogging, just grinding it out.

BRAD --73.103.xxx.xxx




1031 (by S i d [MO]) Posted on: Dec 2, 2023 11:32 AM
Message:

don, I hear what you're saying, but I think you missed the nuance in my question. Let me try to give an example...

Let's say you buy property A for $50,000 then sell it for $100,000 10 years later. You 1031 into new property B that costs $200,000. The income taxes and depreciation "move" to property B. Then 30 years later you sell Property B for $1,000,000.

You handle THAT sale with a private attorney and don't tell him about Property A. You pay your income tax and depreciation on Property B, but what about property As carried over amount? How does the IRS know that you sold A to get B if you don't file the paperwork? What would be suspicious about this since you DID pay your taxes on B and everything about that deal looks on the up and up, just as if you'd never owned A?

In short, what is it that connects the dots to a previous 1031? Is there a ginormous database out there that says, the next time Property B at 123 Anywhere Ave in Anytown USA sells, the IRS will have a record that it was 1031'd long, long ago?

I'm just curious. Govt is notorious for leaving "loop holes" like this, and while I personally will always do the right thing and report accurately I just wonder how that would work?

--184.4.xx.xx




1031 (by Ray-N-Pa [PA]) Posted on: Dec 2, 2023 11:59 AM
Message:

The IRS currently doesn't keep track of the depreciation, that occurs with your CPA and the FI in a 1031. Most CPAs will ask you how ever for the break down on the current purchase is between capital improvements and land.

I sold the Pizza Hut after the franchise operator died. I bought Oil wells and another commercial warehouse building. Why that combo? OGM don't depreciation but instead get Depletion allowances. Those allowances eliminate depreciation and Capital Gains. So even you have a long held property, exchanging into the right assets allows you to avoid the taxes. OGM though are bets that the value of the UUS dollar is going to go down.

The typical strategy one uses is to defer, then defer again, defer yet again and then at some point you die. At the death, there is a step up basis for the folks who gain control of the property. How that occurs depends on how well you do with asset protection and estate planning. A land trust can be priceless at that point.

You are suppose to hold on these properties for at least two tax reporting periods. I bought a place in Oct 23 that I plan on moving into in March of 2025. That way there will actually be there tax reporting cycles.

There are dozens of twist that can occur in 1031's. 1031 is a broad term so you need to hire a rock solid FI that help you through it. The difference between $1,000 and a $1,500 company might even up costing you dearly. You can do reverse 1031's. construction 1031's, straight exchanges or even three party exchanges along with 170 Bargain sales.

The take away - Congress allows you to have a license to steal if you are staying in the field. There are asset types out there that allow you to lower your work load if you want it too --24.101.xxx.xxx




1031 (by Ray-N-Pa [PA]) Posted on: Dec 2, 2023 12:02 PM
Message:

What is the benefit of the 1031?

If you took a single penny and doubled it everyday, by day 30, you would have $5,368,709.12.

So, if one penny doubles to two pennies, then you lose one-third of a cent on that day’s gains, which means that you have less money to double the next day. As that trend continues for thirty days, you’ll end up with just $20,000 at the end of the month. --24.101.xxx.xxx




1031 (by 6x6 [TN]) Posted on: Dec 2, 2023 12:41 PM
Message:

I knew the money guy would have an answer. I like the example. --73.190.xxx.xxx




1031 (by WMH [NC]) Posted on: Dec 2, 2023 5:45 PM
Message:

I know my attorney files HUD statements whenever we buy a property (and we usually pay cash) and our CPA wants a copy. There's very little on there as there are no loans to document, but it does list price, downpayment, amount to attorney, amount to Seller - and I imagine the Seller's is similar but probably has more info if they are paying off a loan, etc.

Any transaction over $10k has to be reported by both the Seller AND the Buyer, doesn't it? --173.18.xx.xxx




1031 (by BRAD 20,000 [IN]) Posted on: Dec 2, 2023 9:48 PM
Message:

Thoughts…

When I sell outright the title company is required to issue a 1099 to the IRS.

Back to my example here’s a simpler answer -

I paid under $100-150k for those 5 props. I rolled that investment into the big home that will be worth $350 when I get it cleaned up. So basically I paid $150k for my $350k. Every penny of my investment stayed with me, not the govt.

When other homes are 1031’d into NNN commercial I see it as a HANDS OFF financial INVESTMENT which yields cash flow, much like investing in Wall Street, not the burden of management and repairs needed for rental homes.

BRAD --73.103.xxx.xxx




1031 (by Ray-N-Pa [PA]) Posted on: Dec 4, 2023 6:19 PM
Message:

At least for no, 1099s don't include any depreciation.

As long as you trading up and there is no Boot - life is great. Need the cash? wait one day and get a cash out refi --24.101.xxx.xxx



Click Here to send this discussion to a friend
Report discussion to Webmaster


Reply:
Subject: RE: 1031
Your Name:
Your State:

Message:
1031
Would you like to be notified via email when somebody replies to this thread?
If so, you must include your valid email address here. Do not add your address more than once per thread/subject. By entering your email address here, you agree to receive notification from Mrlandlord.com every time anyone replies to "this" thread. You will receive response notifications for up to one week following the original post. Your email address will not be visible to readers.
Email Address: