The upcoming holiday season can be a time of joy, with family, friends and celebration. The holiday season can also be a time of stress, with tangled lights to untangle and hang, gifts to shop for and wrap, and parties to plan.
Are you currently in a 1031 exchange or contemplating beginning an exchange before the end of the year? If you sold or are planning to sell investment property between October 17, 2017 and December 31, 2017, you should plan on filing IRS Form 4868 - Application for Automatic Extension of Time to File U.S. Individual Income Tax Return on or before April 15, 2018.
We’ve talked before about 1031 Exchanges and Delaware Statutory Trusts (DSTs). Delaware Statutory Trusts can be attractive investments, especially if you want to own real estate, but don’t want the hands-on hassle. The DST can also provide a terrific tax-deferral mechanism if you decide to exchange into it from a real estate asset sale.
Last week, House Republicans released H.R. 1, their long-awaited 429-page tax reform proposal. The bill, which is titled the ‘Tax Cuts and Jobs Act (“TCJA”) leaves 1031 “like-kind” exchanges intact!
"Cash-Out" Your 1031 Equity
- Expect 61.8% Of Investor's Equity To Be Returned On Tax-Deferred Basis Within 10 Days Of Investing.1
- Expect 38.2% Of Investor's Equity To Receive Monthly Preferred Return Distributions Of 5.25% per Year.1
- Walmart Supercenter at the busiest intersection in Texas2, 18 years on lease guaranteed by Wal-Mart Stores, Inc. (S&P: AA / Moodys Aa2).
- Appraised Value: $42,670,000; Land value estimated at 63% of Appraised Value.3
All commercial real estate is cyclical. Historically, some property types have values that tend to correlate with overall economic conditions more so than others. Retail and office properties for example have been known to take a hit during economic downturns. During the Great Recession and its aftermath, apartments became a hot investment ticket, while single-family housing values plummeted.
Consider the following.
You own a lakeside vacation home. Over the years, that home has been a great place for family gatherings, and to hang out on weekends. Now, the family is grown and you are ready to dispose of the property, hopefully without paying a boatload of capital gain taxes.
We’ve written extensively on how you can take advantage of the Internal Revenue Code’s Section 1031 to defer tax liability on relinquishing property. We’ve also noted that the time period in which you can find a like-kind asset, and then buy it, is strict. If you miss the 45-day deadline (in which to identify a replacement asset) and the 180-day window (during which you must close on that replacement asset), the exchange might no longer be valid, and you end up owing taxes.
Part 5 in the Realized Series "2017 Tax Reform Impact on Real Estate"
We’ve been writing extensively on tax reform issues, and for a very good reason. If the GOP’s Blueprint, entitled “A Better Way, Our Vision for a Confident America,” and President Do
nald Trump’s one-page “2017 Tax Reform for Economic Growth and American Jobs” end up becoming the new U.S. guide for taxes, look for changes on how real estate is acquired, held, and sold.
The Involuntary Exchange
Not all exchanges are voluntary. If your insured home or investment real estate was destroyed by a fire, earthquake, hurricane or other natural disasters beyond your control, you likely will receive insurance proceeds in amounts that are greater than your adjusted tax basis. In this situation, a taxable capital gain exists – even if your property was decimated through an “act of God.”