A 1031 exchange allows investors to sell one property and purchase another like-kind property while deferring taxes on gains. This doesn’t mean you must purchase the replacement property for the same price as the relinquished property. The replacement property can be a higher or lower value. But if you want to defer all gains, the replacement property must be at least of equal value.
IRS Code Section 1031, which details the exchange of like-kind properties, does not specify a minimum holding period for the deal's properties. The language of Section 1031 does stipulate that the property must be held for productive use in a trade or business or for investment. That applies to both the property sold and the property purchased.
Section 1031 of the Internal Revenue Code allows a taxpayer to defer the recognition of gains (or losses) on an investment property when sold if the relinquished property is exchanged for a like-kind replacement property. While Section 1031 does not specify a holding period for the property, the IRS and courts have generally held that two years is adequate. Separately, IRC Section 121 (a) allows for the exclusion of capital gains from the sale of a primary residence of up to $250,000 for a taxpayer, or up to $500,000 for a married couple filing jointly. The IRS has set eligibility for the Section 121 exclusion at two years (ownership and use as main home) during the last five years, with some exceptions.
There are many ways to calculate the return on a real estate investment. Two main categories make up the calculations: holding period return (i.e., buy to sell) and performance metrics (i.e., ongoing basis - property not yet sold). For this article, we’ll go over how to calculate the holding period return using an all-cash transaction and then another with debt financing.
Raw land can be a good long-term investment. Depending on the location, raw land can be low cost to own and maintain, has the potential for passive income, and it can be easy to acquire.
The successful consummation of a Section 1031 Exchange requires the taxpayer to follow IRS guidelines that are broad in some respects and specific in others. Some tax advisors refer to 1031 as one of the more generous provisions of the internal revenue code, offering real estate investors an unparalleled chance to preserve and grow wealth by deferring recognition of capital gains. The broad guidelines are the “like-kind” provisions, which accommodate the exchange of many different varieties of commercial investment properties.
As a real estate investor, you are likely familiar with the difference between direct and indirect real estate investing. A direct property investment means an ownership interest (full or partial) in a real estate asset. To participate in indirect property investment, you would probably buy shares in a public or private investment company, like a real estate investment trust, or REIT.
McKenna Jacona, a sophomore at the University of Nevada, Reno, was excited to move back to Reno this fall and start classes at UNR. Last year, the 19-year-old, along with a few thousand other UNR students, were forced to move out of the college’s dorms on short notice after the university closed its student housing and campus in late March during the initial COVID-19 shutdown.
Here is the big picture of the Qualified Opportunity Zone program, broken into three parts.
In retirement, your portfolio allocation will depend on your goals. Maybe you want income or perhaps you want growth for your heirs. Both require different portfolio allocations. Those looking for income should consider managing exposure to risky assets. Otherwise, that income can be threatened by swings in the portfolio’s value. While just the opposite may be true for investors with a growth objective. In this article, we’ll look at what to consider when deciding on a portfolio allocation strategy for retirement.