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Introduction:
The Entrepreneur Magazine Legal Show with
Garrett Sutton, Live Tuesdays from 10-11am
Pacific time: 888-327-0061; The IRS allows
you to sell real estate without paying taxes.
Using a special section of the IRS code, you
can exchange properties tax free. Introduction:
Gary Gorman, author of, "Exchanging UP! How
to build a real estate investing empire without
paying taxes using 1031 exchanges." What does
a 1031 exchange do? Rolling gain from the
Old Property over to the new. What do I have
to do to get tax free treatment? The 6 things:
1. Both the Old Property you're selling and
the New Property you're buying have to be
held for investment. Can you use your personal
residence for this? Investment property; can
I buy any other kind of investment property? |
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Is
1031 exchange a law? Is it an IRS code section?
This is an IRS code section that allows these
tax-saving strategies. Element 2: From the
day you close your Old Property, you have
45 days to come up with a list of properties
you want to buy. How many properties should
I put on that list? Rule 3: Again, from the
day of closing, you have 180 days in which
to close the purchase of whatever you're going
to buy, and whatever you buy as your replacement
properties has to be on that 45 day list.
What happens if you don't get the properties
together by 45 days? Or you don't close within
180 days? What are the consequences? Are the
45 and 180 days cast in concrete? Can I get
an extension? Is this crucial? 4th Element:
You cannot touch the money in between the
sale of your Old Property and the purchase
of your New Property. Is this the law? Do
I have to have an independent 3rd party? What
is a "Qualified Intermediary?" Does the QI
hold my money? Do I have to be really careful
about that? Why? How expensive it is to arrange
for an Intermediary? Do complicated transactions
with lots of pieces and lots of partners cost
more? Is this a good deal? |
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What's
the cost of the gain vs. the cost of the Intermediary?
The 5th Element: However you hold title to
your Old Property, is how you have to take
title to your New Property. What about a Corporation?
Does it have to be the same taxpayer? Same
tax ID number? What if you hold Property in
an LLC? What about Corporations? Partnerships?
What about Trusts? The 6th element: In order
to pay zero tax, no tax, you have to: 1. buy
equal-or-up, OR 2. if you bought it for less,
you have to pay tax on the buy-down. |
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Gary
Gorman, author of, "Exchanging UP! How to
build a real estate investing empire without
paying taxes using 1031 exchanges." Running
through the 6 elements: 1. both the Old Property
you're selling and the New Property you're
buying have to be held for investment. 2.
From the day you close the sale of your Old
Property you have to provide a list of typically
3 properties or less that you might want to
buy as your replacement property. 3. Again
from the day of closing you have exactly 180
days or less in which to close the purchase
of whatever you're going to buy, and whatever
you buy has to be on that 45 day list. Do
the 45 days and the 180 days run concurrently?
Are there any extensions? Are these calendar
days? What if it falls on a weekend or a holiday?
4. You cannot touch the money in between the
sale of your Old Property and the purchase
of your New. Do I have to use the services
of a Qualified Intermediary? 5. However you
hold title to the Old Property is how you
have to take title to the New. 6. In order
to pay zero tax, you have to buy equal-or-up,
and you have to roll all of the cash from
the Old Property over to the new purchase.
Are there traps for the unwary? Question:
Exchanging to a lease-hold for a restaurant:
another exchange company said I can do a lease
for 30-years or more Æ can I still do that
if I have an interest in that entity, an LP?
Can I still do that? |
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5.
Answer: Is The LP going to hold the lease?
Or is it going to sublease from you? The PAC
ID number of the owner of the property that
you're selling has to be the same as the tax
ID number of the property you're buying. What
can he do? Are leases of 30 years or more
considered real estate? Info about real estate
and leases. Should he make the term of the
lease exactly identical? What does that mean?
Why? Should he buy low? Or is he just buying
his interest to increase the rate to them?
Tax Court cases on the books: If your sublease
exactly mirrors the lease, how does the IRS
see it? If your sublease exactly mirrors your
lease then the IRS will consider the tenant,
the LP to be the actual owner which violates
the rule. |
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How
can you take cash out of an exchange? Remember
rule #4. According to the IRS how long to
I have to wait after I purchase the New Property
before I can pull the money out? Don't touch
the money on the sale of the Old Property
until you buy the New Property, and then take
it. The Separate Accounts issue. What are
the concerns? Are intermediaries licensed
by any of The States? Can a convicted felon
be an intermediary? Intermediaries hold your
money in one of 2 ways: What percentage of
them hold the money in a commingled account?
Intermediary defalcations: Commingled Accounts.
Make sure your money is in a separate account. |
