1031 Exchange Blog
In this video, we’ll be talking about what financial planners and investors should be asking about the DST from the wholesaler or sponsor that’s selling them the DST interest.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
© 2023 Copyright Jeffrey R. Peterson All Rights Reserved
Capital gains is a form of taxation. It’s actually a preferred or lower rate than pay on your ordinary earned income. Capital gains in the United States at the time of this recording have a maximum rate of 20% for the ordinary appreciation that you enjoy on capital assets including real estate that’s held for investment or business purposes. Some gains are derived because you depreciated the property. Every year you took a depreciation deduction you took an incremental decrease in your basis. Over time you’ll whittle your basis down to zero on your improvements. That gain that’s calculated from your depreciation deductions is taxed at a higher rate of 20%.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
© 2023 Copyright Jeffrey R. Peterson All Rights Reserved
In a 1031 exchange, a related party is determined in one of two ways. There are people you are in familial relations with (your mother, father, child, ancestral and lineal descendants, etc.) But it’s also people you’re in business with (your employee, agent, attorney, accountant, etc.) These are very complex rules and the net may be broader than you think when determining who is a related party. Since related party transactions are more complicated and sophisticated, it’s important to know who is a related party. It’s a good idea to consult with a tax accountant or attorney if you’re engaged with someone you’ve done business with or that you’re related to by family relation.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
© 2023 Copyright Jeffrey R. Peterson All Rights Reserved
Anyone can buy property in the United States, even foreigners. But, subject to certain limitations, when you sell the property, if you’re a foreign person there may be withholdings required where the buyer has to withhold a certain portion of the proceeds because it has to be available to pay the seller’s US property tax liability from the sale. This may complicate a foreign person’s sale of a property but generally speaking, foreign people can buy US real property. It’s just that things get a little bit more complicated when they go to sell the property.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
© 2023 Copyright Jeffrey R. Peterson All Rights Reserved
What transactional expenses can you pay when you’re doing a 1031 exchange? Normally, in a 1031 exchange all of your equity from the sale of the relinquished property go to the intermediary and get reinvested to acquire the like-kind real estate. But you’re going to incur some costs along the way. You’re going to have to pay a real estate agent’s commission on the sale of the relinquished property. You may have to pay state deed tax, transfer fees, recording fees, title company charges, etc. The IRS says in the treasury regulations that you can use a portion of the equity to pay customary transactional expenses. But remember that sometimes non-transactional expenses creep into the closing statement. The property taxes, HOA dues, liability insurance – these are costs of ownership that you’re going to incur whether you sell the property or not. When you put these on the settlement statement that could trigger some recognition of gain. You may be better off bringing some cash to the closing and paying those operational expenses out of pocket. On the purchase of you replacement property, you may be astonished to find out that the costs associated with your new loan, such as origination fees, points, MRT, and other expenses related to the loan are not considered qualified transactional expenses that you can pay without triggering some gain. So you may want to bring some cash to the closing to cover those expenses or even better, negotiate with the lender to give you a no-cost loan where they don’t charge you a bunch of fees, but instead charge you a higher interest rate. Have your accountant go through these statements line-by-line because if you wait until April 15th to show it to your accountant, it will be too late.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
© 2023 Copyright Jeffrey R. Peterson All Rights Reserved
