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What is the Napkin Test?
Legendary California real estate attorney Marvin Starr likely had no idea when he snatched up a paper table napkin during a real estate seminar to jot down some quick 1031 exchange math that he was pioneering the most simple method of determining an exchangor’s financial position in a potential exchange.
What is a 1031 Exchange Addendum, and How Does it Work?
Many 1031 exchange contracts have all the necessary language to complete the exchange. However, there are times when modified or new language must be introduced after the fact. This article will look at a few scenarios where a 1031 exchange addendum is needed.
Can You Sell Multiple Properties in a 1031 Exchange?
There is nothing special about selling multiple properties in a 1031 exchange (also called a forward exchange). However, it can be more difficult than a single property exchange. Compared to a single property exchange, there can be more properties and people involved. This means far more to juggle and maintain, all while trying to beat deadlines. Let’s walk through what this type of transaction might look like.
Does Depreciation Restart after a 1031 Exchange?
When investors do a 1031 exchange, their basis carries over into the replacement property. They are also able to continue taking the annual depreciation expense. But does the depreciation restart or change from the existing schedule once the replacement property is acquired?
How to Report a Reverse 1031 Exchange on a Tax Return
Reporting a reverse 1031 exchange on your tax return doesn’t require too much work above a regular 1031 exchange. However, if you have done more than one reverse 1031 exchange, you’ll need to file forms for each one, which can certainly add to your workload at tax time.
What Can You Buy With a 1031 Exchange?
A 1031 exchange is an investment and tax tactic that gets its name from Section 1031 of the Internal Revenue Code. The execution of a 1031 exchange may allow a taxpayer to defer recognition of capital gains taxes when they sell an investment property and reinvest the proceeds into another asset. The rules are strict in some ways, such as the timeline, but generous in others, such as regarding what properties the taxpayer can exchange.
How Does a 1031 Exchange Work with Seller Financing?
Seller financing is a common practice in real estate transactions. In this unique form of lending, the seller of an investment property also functions as the buyer’s mortgage lender.
What is a 1031 Cooperation Clause and How Does it Work?
A 1031 exchange is much different than a straight sale or other type of real estate transaction. As such, it’s important for exchangors to inform all parties involved that the pending transaction will be part of a 1031 exchange because there are some extra steps both parties must take to ensure the exchange complies with Internal Revenue Service regulations.
Who Takes Title In a 1031 Exchange?
In a typical 1031 exchange, an investor decides to sell a property and reinvest the proceeds. If the property has appreciated during the time the investor has owned it, they will be responsible for paying capital gains taxes on the increase in the fair market value. Assuming that the investor has held the asset for more than one year, the taxes will be assessed at the long-term capital gains rate, which is typically lower than the tax rate for ordinary income but can still be as much as 20 percent.
What Happens If You Sell a 1031 Exchange Property At a Loss?
If you’ve been reading our blogs on a regular basis, you know that we publish a great deal of information about 1031 exchanges and potential tax benefits. Specifically, a well-executed like-kind exchange can defer capital gain taxes and depreciation recapture to a future date.
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