1031 Tax Exchange

The 1031 Tax Exchange is an easy and beneficial way to save money when you’re making a property exchange, moving or relocating. However, the terms and agreements of this great system are often misunderstood, and with a little help, can make your move a whole lot easier. This is an absolutely perfect opportunity where real estate investors can save taxes and acquire wealth.

Under the 1031 Tax Exchange there are the following opportunities and possibilities; consolidation, leveraging, diversification and relocation all without the consequences of recapture or capital gains. Qualifications are simple; if it’s personal or real property they must be a Like-Kind of properties, of the same quality and the same nature. A definition of this would be a property owner that is looking to lease a designated piece of property that will not require management, of course, if this property is not Like-Kind, it will be designated a Mortgage or Cash Boot, and cannot be honored. A few ways to ensure that you can avoid Cash or Mortgage Boot, is to supply yourself with cash to cover losses during a closing on relinquished property, or to trade higher while purchasing property.

For a 1031 Tax Exchange there are specific requirements that need to be met after the property closes. As an investor you have a 45 day obligation to find a new property and a 180 day period to make a complete purchase. Under no circumstances are extensions allowed.

Of course to ensure that these exchanges are compliant to the strict rules of the 1031 Tax Exchange it has to be overseen by a Qualified Intermediary. To ensure that all transactions and information are verified the Intermediary must review written documentation describing the property. When purchasing the new property it must be of equal or greater value than the previously owned property. The 90% rule, the 200% rule and the Three Property Rule are the three rules that constitute a replacement property. Unless these three rules met the 1031 Tax Exchange cannot be taken advantage of.

Investors are incapable of retrieving the sales proceeds within the 45 day period of exchange. However, if the investor is incapable of finding and closing upon a new property within the 45 day period of exchange, he must wait a full 180 days to retrieve his or her proceeds.

Some of the many ways to take advantage of the 1031 Tax Exchange are; Improvement Exchange, Simultaneous Exchange, Personal Property Exchange, Delayed Exchange and many more. One of the main stresses of the 1031 Tax Exchange is to ensure the funds are properly vested, rules ensure that the person or entity the initiated the exchange must be the one and only person that can end the exchange. Personal investors cannot, and will not use their own personal bank accounts to withhold proceeds; this is a direct violation of the 1031 Tax Exchange and will not be honored.

Triple Net Leases know as NNN are where you find the tenant agreeing to pay the three Nets of the property. These three Nets are building insurance, real estate taxes and maintenance. This makes the tenant responsible in full for all the purchases and costs of maintenance and repair. This being said the Triple Net or NNN is more of an Equity investment rather than a Cash Flow investment.