NestEgg Investing: 1031 Tenants in Common Exchanges

1031-121 Exchange-Don't Rush to Sell When a Spouse Dies

Full Article: http://www.centredaily.com/mld/charlotte/living/home/11468875.htm?source=rss&channel=charlotte_home

ROBERT BRUSS

Q. My wife and I, now in our 80s, own our home worth around $800,000. After one of us passes on, how long does the survivor have to sell the house before losing half of the $500,000 principal-residence sale exemption?

After one principal residence co-owner dies, the survivor should not rush to sell the home.

Internal Revenue Code 121 says a surviving spouse has until the end of the year of the other spouse's death to sell the principal residence and claim up to $500,000 tax-free profits. The tax reason is the year of a spouse's death is the last year a surviving spouse can file a joint-income tax return with the deceased spouse.

However, IRC 121 doesn't mention the stepped-up basis benefit for a surviving spouse who inherits the deceased spouse's half of the principal residence.

Suppose you and your wife are both on the title to your home. You die. Your widow will receive a new stepped-up basis to market value for the half of the residence inherited from you.

In a community-property state, the entire value of the house will be stepped up to market value on the date of your death.

Please ask your tax adviser for full details.

Tax-deferred exchange

Q. I own a modest apartment building, which I can sell for a net profit of almost $1 million. I would like to make an Internal Revenue Code 1031 tax-deferred exchange for a nice retirement home for my wife and me plus a rental property. Can we do this in a tax-deferred exchange? Not immediately. All properties in an Internal Revenue Code 1031 tax-deferred exchange must be held for investment or use in a trade or business. That means the properties you acquire must be held for rental or use in your business.

You can make a direct tax-deferred trade for a "nice retirement home." To qualify, it must be a rental property at the time of acquisition and for at least six to 12 months thereafter.

Later, the tax law does not prevent you from converting one of those rental properties acquired into your retirement home. No tax will then be due upon conversion from rental to personal use. For full details, please consult your tax adviser.

1031 TIC Exchange Triple Net Leases, The Management Free Option

An increasingly popular 1031 exchange option is the triple net lease  (ie. "NNN").  A triple net lease is a long term lease where the tenant pays for all maintenance, taxes, insurance, and utilities.  Usually, these NNN leases are with well know franchises or chain stores such as Walmart, Walgreens, Pizza Hut, and Starbucks. 

The advantages of exchanging your investment property (either individually or through a tenants in common) into a NNN property are:

1) Zero maintenance

2) Zero occupancy risk- high credit tenants sign long term leases

3) Lower principal risk (because of #2)

4) If you purchase through a tenants in common structure, you can buy a larger, and thus higher yielding property

The attached article provides a good overview: article link

Retiring and Looking to Eliminate Management Headaches?

You've built up a lot of wealth through real estate investing, but now you're looking sell to relieve yourself of management headaches, avoid the real estate bubble and increase income.  Recent 1031 laws have made some really interesting options available to you.    Basically, you can sell your property and roll the capital gains (on a tax free) into a tenants in common fund that doesn't require any management.  Also, if these tenants in common interests are part of your estate, you will pass on these interests estate and capital gains free.