Does A 1031 Exchange Free Up Passive Losses?
A passive loss occurs from a capital loss, or selling a property for less than you paid for it. The only time it is possible for an investor to utilize their Passive Activity Losses (PALs) is during a 1031 exchange. A PAL is one of two types of losses that can arise from owning investment property. The other type of loss is a Net Operating Loss (NOL). A NOL occurs when expenses of the operation of a property exceed the income.
Financing Options Tighten For Smaller Multifamily Investments
As expected, lenders have tightened up loan requirements, but unlike the 2008/2009 GFC (Global Financial Crisis), the market hasn't frozen up. During the GFC, liquidity dried up and was slow to return. The Federal Reserve has acted decisively in 2020 to avoid a replay of the 2008 collapse. Some of this liquidity has come by way of a program called the Primary Dealer Credit Facility, which was used during the GFC and again as the stock market dove in March this year.
Using DSTs To Fill In The Gaps Of A 1031 Exchange
In order to defer paying capital gains taxes when selling an investment property by reinvesting the proceeds into another property, the taxpayer must comply with the parameters established by the IRS for a like-kind exchange under Section 1031. The crucial rules include the following:
How To Reduce Tax Exposure On The Sale Of An Investment Property
Real estate owners in the final stages of selling an investment property can face substantial tax liabilities. Upon closing, owners may be straddled with federal capital gains, state income and depreciation recapture taxes. Any potential profits could be considerably eroded -- but there are ways to make the most of your pending exit transaction.
How DSTs Help With Your Life Stage Transition
In a familiar scenario, the family business is grown and nurtured by several generations, thriving under the dedication of constant attention. If the circumstances change and that level of direct management is no longer possible, the business could falter and may fail quickly. If property assets are part of the business, one solution may be to consider changing from direct management properties to investments that do not require active involvement. For example, if the primary investor is retiring or otherwise becomes unable to continue overseeing the rental or retail property, it may be time to transition to a passive investment, such as a DST.
Are Dividends Taxed As Capital Gains?
Since the IRS will tax a qualified dividend as a capital gain, while an ordinary dividend is subject to the same tax rate as other regular income, understanding the difference is essential. To be considered a qualified dividend and be eligible for the lower tax rate, a payment must meet the requirements established by the IRS. Because regular income rates top out at 37% and the capital gains percentage reaches a maximum of 20%, the savings may be notable. (Note that there is an additional 3.8% Net Income Investment Tax, which may apply to taxpayers with very high incomes.) The good news for taxpayers is that many dividends meet the qualifications for the lower rate.
Using A DST As A Back-up Plan For Your 1031 Exchange
If you are selling an investment property and seeking a replacement to meet the 1031 exchange parameters for tax purposes, you know that you have some tight deadlines and stringent requirements to meet. Once you sell the property, you have 45 days to identify the replacement property (or properties) and then 135 more to complete the deal. This strict time limit adds pressure to your search for appropriate and desirable properties.
The Impact Of Market Volatility On Multi-Family Lending
As business guru Stephen Covey liked to say, “If there’s one thing that’s certain in business, it’s uncertainty.” That has never been proved more accurate than this year, with its ups and downs, fluctuations, and detours in the investment outlook for commercial lending in all sectors, including multi-family housing. The appeal of multi-family investments is uncertain, due to a lack of clarity in the near-term forecast for rent collection and revenue projections. On the other hand, CBRE reports a reduction in tenant turnover due to lockdowns and economic fears.
Fill The Debt Financing Gap With A Delaware Statutory Trust
Matching the debt from the relinquished property is a vital requirement of the IRS during a 1031 exchange. Failure to do so will result in paying taxes — the worst-case scenario for a 1031 exchanger. But when the markets become unstable or a recession sets in, securing a loan for the replacement property in the exchange may become difficult or even impossible. A paper published by the Harvard Journal of Financial Economics notes that during the peak of the Global Financial Crisis (Q4 of 2008), new loans to large borrowers fell by 47% compared to the previous quarter and by 79% relative to the peak of the second quarter of 2007, identified as the peak of the credit boom.
Student Housing Investments Get Mixed Grades
As colleges and universities across the U.S. open this fall, leaders of those institutions have had to make difficult decisions about operating their schools and teaching their students. Trying to balance the needs of students, parents, faculty, staff, and the community has been fraught for all of the more than 3000 secondary schools. Some have opened with in-person classes and students living on campus, only to reverse course after the eruption of Covid-19 outbreaks. According to The Chronicle of Higher Education:
