1031 TIC Exchange Overview

The biggest driver in real estate investing is the IRS 1031 tax code, but what I realized after doing a year’s worth of research is that there is a lot of misinformation out there. I've tried to fill the gap with this website.  I've given an overview of the core 1031 exchange tax law and its strengths and weaknesses.  More interestingly, I've outlined the new IRS rulings on 1031 exchanges which allow some great new options for the real estate investor. 

The Gist of a 1031 Exchange

The 1031 tax code allows you to roll-over capital gains from the sale of one building into the purchase of a new property on a tax deferred basis.   When employed correctly, it's a powerful tax code that allows investors to move into larger and larger investment properties while locking-in capital gains and increasing rental income.  However, these 1031 exchanges particularly in the Bay Area have led to very poor investment decisions.  Personal investors have 45 days to identify and 180 days to close on a new property.  If an investor fails to perform a roll-over transaction, he is hit with a large capital gains tax bill.  As result, as the days start ticking down investors are just looking for any building to roll into.  I know that commercial broker's best clients are 1031 exchangers who are under the gun to find a new property in time.  Further, for investors approaching retirement who have rolled into bigger and bigger properties (eg. from a duplex, to a 4-plex, to an 8-plex), these exchanges lead to bigger and bigger management headaches.

Here's a summary of the basic law: Download 103120summary.pdf  as well as a link to how to complete a 1031 exchange transaction:  1031 Exchange Transaction Link

New Options

In 2002 the IRS tax code loosened significantly and allowed some new powerful tax strategies.  There's a variety of new options available to the real estate investor (What You Can and Can't Do Under 1031 Link).  Here's some examples:

 

-Retire, end your property management pains while increasing your cashflow:  Retirement Link

 

-Defer gains above $500K on the sale of your primary residence: Primary Home Link

 

-Exchange your rental property for a fractional ownership of a larger institutional- grade property that yields higher returns, zero management, higher tenant credit quality:  TIC link

 

-Set up a zero-tax estate plan:  Estate link

 

-Exchange investment property into a REIT: Link to REITS

Where the Rubber Hits the Road: Choosing the Right 1031 Firm If after you've read all the pros and cons we've listed, and you want to look into 1031 exchanges more deeply, we've create a guide to how to research and pick a firm that you can trust:  How to Choose the Right Firm (Link)

What You Can and Can't Do Under 1031 Here's a two page write up on the ins and outs of the 1031 law:  What You Can and Can't Do (Link)

How to Complete a 1031 Transaction Here's an overview of the 1031 exchange process.:  How to Complete a 1031 Transaction (Link)

Comments

[Kay]

Just found your blog. Wow - lots to digest. Thanks for posting.

[Chris Starke]

I agree with our moderator, often times people enter into 1031 exchange with right reasons, but bad planning. The net result is a lesser exchange.

Used correctly and with great adviser, people can be significantly better off.

I've created the above 1031 exchange replacement property site to concentrate on making suitable investments easier to find for the person in the 1031 exchange. It focuses on NNN properties for sale across the US.

I go live in a little over a week, please visit.
Chris