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How To Convert a Like-Kind Acquired Rental Property Into a Primary Residence

There may come a time when you want to turn an investment rental property acquired through a 1031 exchange into a primary residence. While the process is usually not complicated, converting real estate assets acquired through a like-kind exchange could pose several challenges. The IRS has strict rules regarding the use of such assets. Failure to comply could result in the loss of your tax-deferred status.

An Explanation of UPREITS and Dividend Payments

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If you’re an investor interested in moving from direct to passive real estate ownership, contributing your property to a real estate investment trust (REIT) using the Section 721 exchange could be a viable tax-advantage strategy to help defer capital gains taxes.

Qualifications for Reducing Capital Gains Tax

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Capital gains taxes are an expense that can increase the cost of selling real estate assets. If you sell your assets for a profit, you’ll owe a certain amount–0%, 15%, or 20% of the proceeds--to the IRS. Additionally, depreciation recapture (taxed up to 25%) and the 3.8% Net Investment Income Tax (NIIT) may apply, depending on income level and prior deductions.

The Opportunities and Challenges of 1031 Exchange Oil & Gas Properties

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Section 1031 of the Internal Revenue Code (IRC) is typically used for real estate held for business or investment purposes. However, the like-kind exchange can also be useful for oil and gas properties in certain situations.

Decoding Financial Statements When Exchanging DSTs into REIT Shares via Section 721

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There are many ways to be involved with real estate ownership. There is direct ownership, which involves hands-on management and decision-making. Then there is passive ownership, including Delaware Statutory Trusts (DSTs) or real estate investment trusts (REITs).

The Downsides of a 1031 Exchange

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A 1031 exchange can be a helpful way for you to defer recognition of capital gains on the sale of investment or business real estate while allowing you to enhance your portfolio. By exchanging your investment or business use property for like-kind real estate of equal or greater value, you could postpone tax obligations, leaving you with potentially more money for other investments.

UPREITs and Legal Aspects

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When executed properly, Umbrella Partnership Real Estate Investment Trusts (UPREITs) can provide a tax-advantaged diversification approach or exit strategy if you’re done with active property ownership. However, the process can be intricate and involves legal and tax issues.

Converting a Primary Residence into a Rental Property

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Selling your residential property might be a way to generate income. But it’s not the only way. You might also consider converting that primary residence into a rental property.

Refinancing a Tenancy-in-Common (TIC) Property

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Refinancing can be a necessary strategy for investment property owners entering into a Tenancy-in-Common (TIC) agreement. However, due to the setup of a TIC, refinancing can be highly complex and require multiple steps. Understanding what’s involved in the process can help determine if refinancing the property is feasible.

Using Expenses to Reduce Capital Gains Taxes

Capital gains taxes (CGT) can represent a significant expense when you sell a property. However, there are ways to reduce the tax liability, including using certain expenses to offset realized gains.