Section 1031 is a valuable tax tool for the real estate investor’s toolbox. Prior to recent rulings, an investor could purchase an investment property, rent it out for a few years, and then convert the property to their primary home. Should they decide to sell it after the 5 year minimum holding period, they could [...]
Until recent rulings, it has been difficult to determine what the IRS expects when it comes to Vacation homes and how they are treated in the context of the 1031 exchange. Thanks to Revenue Procedure 2008-16 and Moore v. Commissioner, we now have clear guidelines as what would qualify and what would not. In order [...]
Recently, many of the transactions on the Islands have involved seasoned Sanibel investors that have had a property for many years. Most of these investors decided it was time to upgrade via a 1031 exchange. The transactions were performed by a seller that wanted to upgrade from a two bedroom to a three bedroom unit, [...]
Whenever I tell someone that we are a Qualified Intermediary for 1031 Exchanges, I almost always get the response “1031?! Are people still doing those? I didn’t think those were still being done in this economy.”
At first glance, the idea of increasing the Capital Gains rate seems like a bad thing. How could increasing tax rates ever be a good thing? Well, for all of us Qualified Intermediaries, this is means potentially more business for us. For those of you Realtors out there who are familiar with 1031 exchanges, this could be your golden opportunity. For those who are a little hazy on what exactly a 1031 exchange is, allow me to give you a brief synopsis. 1031 is a section of the tax code that states if you sell investment real estate and purchase investment real estate of equal or greater value, you defer not only all capital gains, but any applicable depreciation recapture and state taxes. This is a key point to note. You will often hear people say, “I’m just going to cash out, pay my 15% and be done with it.” That may or may not be the case. Sometimes they are looking at paying substantially more than 15%.
So what are you doing now with regards to your Financial Life Plan? As Americans, we are terrible planners. Let me give you some statistics. Twenty percent of pre-retirees have spent no time actively planning for retirement. Sixty percent of pre-retirees have spent the same amount of time or more time on home improvement vs. financial planning. Thirty one percent said they would rather clean their bathroom or pay bills than plan for retirement. These statistics are from the Financial Planning Association.
Savvy Sanibel and Captiva real estate investors are always looking for deals, and now may be the best time. The Golden Rule of real estate investing has not changed – the profit is made by purchasing at the right price and not over paying. The rule on Sanibel and Captiva has never been truer. For buyers getting property at the right price, the tax laws have never been more favorable.
1031 can be a potent weapon for the smart real estate investor. There is nothing worse than having a client not consider 1031 or not have their real estate professional tell them about it and the relinquished real estate closes and the client changes their mind.
For example, I just ran into a colleague and we were talking about health care and its effects. Even though he has a 401(k), he will contribute $5,000 for 2009 and $5,000 for 2010 to his nondeductible IRA. Now he has sheltered an additional $10,000 from the Medicare tax.