1031 Exchange

Tax liabilities on the sale of the real estate property may be upto 35%, and even more than this under certain circumstances. The payment of income tax from the sale of real estate property considerably reduces your equity and cash position, which in turn impact overall ability to build your net worth by purchasing larger and more profitable investment properties. The 1031 exchange allows investor to sell one or more properties and defer the tax payment on his/her ordinary income, depreciation recapture or capital gain by one or more replacement or investment assets.

These days, many investors are making use of the 1031 exchange properties for a number of good reasons. These types of properties help them avail long term lease that becomes a source of stable income and equity growth. The best aspect of investing in exchange properties is that people can exchange non-income producing real estate for another real estate property that will not only generate income, but it will also help you defer tax. It means if you have bought a raw land, you can replace it with other lucrative business property that will generate huge income along with several tax benefits.

The 1031 exchange property is much popular investment option especially in the United States. People prefer investing their hard-earned money in exchange properties in order to build stable income and avoid different types of income taxes liable on the owners. Of late, prices for real estate investment products have heavily declined. Considering the increasing popularity of real estate properties, all leading banks are ready to provide you with huge amount of loans helping you buy real estate assets. Those of you, who are looking to invest money in the exchange properties, consult professionals who have good knowledge about 1031 tax-deferred exchanges to guide in the best possible manner.

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For additional information regarding nnn single tenant, 1031 tax-deferred and Triple Net Properties, please contact Triple Net Investment Group today.

In today’s society, even if your daily routine does not consist of dealing with routine Real Estate transaction, most people have heard of a 1031 exchange benefit. For some that have heard of 1031 exchange or maybe those that are not sure about its exact guidelines, here is a breakdown:

• 1031 exchange is a swap, exchange or trade of one business or investment for another
• Although most exchanges are taxable, a 1031 exchange is tax exempt or have limited tax restrictions
• There are no limit as to how many times you can do a 1031 exchange
• The provision is only for business investment and property (primary place of residence are excluded, with some loopholes regarding vacation homes which will be explained later)
• Most exchanges must be similar or “like -kind” but it’s rules are also very liberal; for example, you can exchange an apartment for bare land or as a typical 1031, which is exchange of one business investment for another
•  If you can’t find a property that suits your liking, you can do a “delayed” exchange. Basically, once you sell your property, a third party middleman holds the cash for you until you find another investment property to buy. This process is also called a Starker Exchange.  Within 45 days of the sale of your property, you must find another replacement property (up to 3 potential replacement property are allowed according to the IRS as long as you close on one of them) and indicate in writing to the intermediary of your intention to purchase. One should also note that you have 180 days from the time you sell your property to close on your new property.  If you have cash left over known as “boot” after the purchase of your replacement property, that earning is subject to be taxed because it is regarded as capital gain.
• 1031 exchange can be used for a vacation home that you no longer use as well and have converted it into a rental investment property. The key is to have a property rented for a good amount of time, preferably a year, before you decide to do the 1031 exchange.

For additional information regarding rental investment, 1031 exchange benefit, 1031 exchange, tax exempt, Improvement exchange, capital gain and Lease Triple Net Properties, please contact NNN Investment Group today.

Since 1921 investors have been given the opportunity to defer the capital gains tax from the sale of a property by using Tax deferred 1031 exchange (about 1031 Exchange).  Tax Deferred 1031 Exchange allows an owner of real property, the Exchanger, to defer the recognition of a capital gains tax normally recognized on the sale of real property, if the exchanger buys a like kind property of equal or greater value and uses all of its cash equity in the subsequent purchase.

Like kind nnn 1031 property exchange does not mean triple net properties to be exchanged for other triple net properties or free standing nnn single tenant retail property to be exchanged for another nnn single tenant retail property. There is no requirement that properties be similar in type or class. However, real property must be exchanged for real property. Like-kind propery is defined as property held for productive use in a trade or business, or for investment purposes, that is exchanged for property which is also held for productive use in a trade or business, or for investment purposes. Example, a vacant land which is held for investment purposes can be exchanged for retail property held for business purposes.

1031 exchange should be done through a qualified intermediary. A Qualified Intermediary is an independent third party to the transaction whose function is to prepare the documents necessary to create the exchange, as well as to act as the independent escrow agent for the exchange funds.

How much many can be saved through a 1031 Exchange for a next purchase?

Example: If an investor is selling a triple net shopping center for $1,000,000, and has a net adjusted basis of $500,000, the investor will have a gain of $500,000 upon the sale of the property.

Current federal capital gains tax is 15% on the amount the property has appreciated in value. The investor will also pay a tax known as depreciation recapture at the rate of 25% for the amount the property has been depreciated during its ownership. In addition, there may be a state or local capital gains tax.

Many investors multiply the gain by 25% to get a rough estimate as to the amount of tax they might realize if they do not structure the transaction as an exchange. In this example the gain would be approximately $500,000. Accordingly, if we multiply this amount by 25% the estimated capital gains tax if this sale were not structured as an exchange would be $125,000.

Three methods for NNN 1031 Exchange Property Investments:

1) Identify three properties of unlimited value (Most Common Method)

2) Identify an unlimited number of properties whose aggregate fair market values do not exceed 200% of the value of the properties sold in the exchange

3) Identifies more than three properties and their aggregate fair market value is in excess of 200%, the Exchanger must purchase at least 95% of the value of the properties identified.

NNN 1031 Exchange Restrictions:

1) Exchanger has 45 days from the date of the sale of the first relinquished property to identify potential replacement property or properties; and a total of 180 days from the original sale date to purchase the replacement property or properties.

2) Exchanger must acquire replacement property of equal or greater value, obtain equal or greater debt on the replacement property, reinvest all the net proceeds realized from the sale of the relinquished property, and acquire only like-kind property.

3) Exchanger must own the investment property for at least one year before he can use it for 1031 Exchange.

4) Exchanger must initiate the 1031 process before the closing, once the closing occurs; it’s too late to utilize the 1031 deferred exchange.

5) Exchanger may use the vacation house or primary residence for 1031 exchange as long as the property is reported as a rental or business use on the tax returns for two consecutive years.

 Advantage of NNN 1031 Exchange Properties Investments:

1) When selling real estate, if you sell and reinvest, you will pay income taxes on the realized gain. However, with 1031 exchange, you will defer the tax gains.

2) You may have management-intense rental properties and would prefer to transfer your equity to ease-of-ownership   single tenant properties (coupon clippers) such as Walgreen Drug Stores, Wal-Mart, Post Offices, 7- Eleven, Office Depot, etc. (Advantage of NNN 1031)

3) You may have been holding properties long after their appreciation has topped out. You can start rebuilding your equity by disposing of those investments and acquiring new ones.

4) You may have some non-income producing real estate investments, such as raw land. You could exchange this property for another asset that would not only give you cash flow, but also get you income tax deductions such as depreciation, which you did not have with your raw land.

5) This means that more money is available for acquiring your next investment. It can be regarded as a free loan from the government!

6) You may have owned a leveraged property long enough to have accumulated considerable equity. You now have an opportunity to exchange into a larger asset, and reposition your equity to your benefit or that of your heirs, without paying taxes. We highly recommend using qualified professionals that have experience in 1031 tax-deferred exchanges to guide you and ensure your compliance with government regulations.

7) With proper estate planning you can keep exchanging properties throughout your lifetime. Neither you nor your heirs will ever pay income taxes on the gains. By doing a tax-deferred exchange,you conserve your equity by not having to pay taxes on your net profits.

Above points are the advantage of NNN 1031 exchange.

 Disadvantage of 1031 Exchange Investments:

1) Exchanger will have a slightly lower depreciation schedule when acquire  new properties. This is because the IRS will look at the new tax basis as being the same as the previous one, less the deferred gain.

2) Exchanger losses on the income tax return cannot be deducted if you exchange property rather than sell it. If you want to take a loss, simply call it a sale, not an exchange.

For additional information regarding Advantage of NNN 1031, Clean Site, 1031 exchange, NNN Property due diligence period, Foot Traffic Counts, commercial nnn properties, Insurance Policy and Lease Triple Net Properties, please contact NNN Investment Group today.

Tax liabilities on the sale of the real estate property may be upto 35%, and even more than this under certain circumstances. The payment of income tax from the sale of real estate property considerably reduces your equity and cash position, which in turn impact overall ability to build your net worth by purchasing larger and more profitable investment properties. The 1031 exchange allows investor to sell one or more properties and defer the tax payment on his/her ordinary income, depreciation recapture or capital gain by one or more replacement or investment assets.

These days, many investors are making use of the 1031 exchange properties for a number of good reasons. These types of properties help them avail long term lease that becomes a source of stable income and equity growth. The best aspect of investing in exchange properties is that people can exchange non-income producing real estate for another real estate property that will not only generate income, but it will also help you defer tax.  It means if you have bought a raw land, you can replace it with other lucrative business property that will generate huge income along with several tax benefits.

The 1031 exchange property is much popular investment option especially in the United States. People prefer investing their hard-earned money in exchange properties in order to build stable income and avoid different types of income taxes liable on the owners. Of late, prices for real estate investment products have heavily declined. Considering the increasing popularity of real estate properties, all leading banks are ready to provide you with huge amount of loans helping you buy real estate assets. Those of you, who are looking to invest money in the exchange properties, consult professionals who have good knowledge about 1031 tax-deferred exchanges to guide in the best possible manner.

For additional information regarding Benefits of Investing in 1031 exchange, 1031 exchange, 1031 tax-deferred, Sells Ground Lease, Investing in Ground Lease, tax-deferred exchanges and Lease Triple Net Properties, please contact NNN Investment Group today.

1033 Exchange and 1031 Exchange

• 1033 Exchange is involuntary sale of investment property through eminent domain  ( government taking the property for its own use ), destruction or theft and tax payer receives money from insurance company or government.
• 1031 Exchange is voluntary sale of investment property for purpose of buying another investment property equal or higher in price.

• 1033 Exchange does not require the use of QI, qualified intermediary
• 1031 Exchange requires the funds to be placed with QI, qualified intermediary

• 1033 Exchange replacement period ends two years after the close of the first tax year. For business or investment real property the replacement period ends three years after close of the first tax year. Three years does not apply to property sold through destruction or theft.
• 1031 Exchange replacement period ends 180 days after selling of relinquished property.

• 1033 Exchange seller can complete the exchange by making improvement in property already owned.
• 1031 exchange seller is required to purchase a new property.

NNN 1031 Exchange Restrictions:

1. Exchanger has 45 days from the date of the sale of the first relinquished property to identify potential replacement property or properties; and a total of 180 days from the original date of sale to purchase the replacement property or properties;
2. Exchanger must acquire replacement property of equal or greater value, obtain equal or greater debt on the replacement property, reinvest all the net proceeds realized from the sale of the relinquished property, and acquire only like-kind property;
3. Exchanger must own the investment property for at least one year before it can be used for a 1031 Exchange;
4. Exchanger must initiate the 1031 process before closing on the property being relinquished.  Once its closing occurs; it’s too late to utilize the 1031 deferred exchange process;
5. Exchanger may use a vacation house or primary residence for a 1031 exchange as long as the property is reported as a rental or for business use on tax returns for two consecutive years.

For additional information regarding Benefits of Investing in 1031 exchange, 1031 exchange, 1033 Exchange is involuntary, 1031 Exchange replacement, 1031 Exchange Restrictions, 1033 Exchange seller, 1031 exchange seller and Lease Triple Net Properties, please contact NNN Investment Group today.