With the launch of Best1031online.com and after committing to publishing the accompanying blog, I thought it might be a challenge to come up with good related topics and be content-ready.
As it turns out though, there’s so much to talk about in regard to a Tax Deferred 1031 Exchange, that I struggled with where to start!
I thought a good starting point would be debunking common myths and setting the community straight with exactly what is true in a 1031 Exchange. As I sat down to conduct a little research on common myths of the 1031 Exchange, boy did I open a huge can of worms! I found no less than eight articles with both “1031” and “myth” in the title. My interest was piqued even further…
45 Different Myths!
After wading through the first 8 articles, I counted more than 45 different myths!
That is correct, nearly 50 different myths, lies, and untruths about one of the most powerful tools in real estate investing, provided by the Federal Government, no less!
It is no wonder that so many investment property owners miss out on some great wealth preservation and wealth building opportunities because there is so much misinformation, lack of expert advice and guidance. This is why so many transactions end with tremendous wealth being left on the table and in Uncle Sam’s pocket instead of an exchangers own pocket.
To make this simpler and easier to digest, I have narrowed all these myths down to the ten most common, starting with the Top Five (6 through 10 will be Part 2!):
• You must engage into the exact same type of property that you wish to relinquish or dispose of.
Definitely one of the most common misunderstandings of the rules defined in the tax code, which states, “a like-kind exchange.” Here’s the truth, as long as they are either for investment and/or business, or trade, an exchange is allowed. If you own your business real estate, you can sell it, use the tax code opportunity to leverage into your next expansion, or you can sell your multifamily and exchange into single tenant retail. As long as it’s investment for investment business for business, it is considered a like-kind exchange.
• The 1031 Exchange is only for commercial property.
Another very common myth. The properties sold in an exchange can all be residential houses, as long as they are investment rental property.
• A 1031 defers all tax liability and capital gains tax goes away.
Don’t we wish!
The only tax affected is the tax owed on the capital gains, (profit) from the sale of the relinquished property (downleg). Property tax will still be owed on their replacement property (upleg) and the capital gains tax are only deferred, it doesn’t go away, unless you continue to exchange, which is how wealth is built, or you pass on.
• 1031 Exchanges are only for the big-time rich investors.
Not true! I have had clients perform successful exchanges with less than $150,000 in capital gains that saved them more than $50,000 in taxes! As a rule of thumb, the total tax percentage can reach up to 35%, depending on your state and income tax bracket.
And this one kills me…
• 1031’s are too good to be true, therefore they are tax loopholes, or even illegal.
Nope. It literally gets its name from the IRS tax code, IRC Section 1031.
As I mentioned earlier, there are another forty plus of these urban myths, these are just the top five of the most common. But myths must be dispelled and so I will continue to share, giving you the next top 10 in my next blog, stay tuned!
If you, or someone you know has a property that they really need to get out of, please contact us at 805-779-1031. And remember, if you’re an agent or broker, you can earn up to 50% in referral fees! We are offering up to 50% Referral Fees to any agent/broker that refers a qualified exchange buyer to us; the more you are involved in the transaction, the more you can earn. Think of how many more listings you will win, knowing that you have an exchange resource! Please feel free to contact me through this website for further details.
If you are an investment property owner who is interested in a no obligation, private consultation, please visit Best1031Online.com, or contact:
James Bean of SVN-Rich Investment Real Estate Partners, CA DRE# 01970580
james.bean @ svn.com
If you are an agent/broker, I am happy to discuss strategies with you on how to best serve your next listing client in preparing them for a successful exchange.
Don’t know what certain terms mean? Click here for a Glossary of Terms
All information is deemed to be accurate, and not advice. All investors/taxpayers should consult their CPA, tax attorney and investment advisors.
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