Navigating the complexities of 1031 exchanges becomes especially challenging considering that real estate investors typically do not frequently sell their rental properties. As a result, even the most experienced tax professionals may lack the specialized knowledge needed to address all the crucial aspects of a 1031 exchange. That’s where the role of our experts at Exchange Planning Corporation comes into play.
It will also make you smarter than most tax professionals. Almost every exchange of real estate property involves boot, which is another term for cash. Sadly, most tax professionals don’t know the definition of “cash received” or why there is boot in these exchanges. Having an understanding will help you complete a valid exchange and save taxes on it, too.
The “secret sauce” that will provide you with big tax savings. After the Tax Cuts and Jobs Act of 2017, cost segregation has become more valuable than ever in helping real estate investors accomplish their goals in a tax-efficient manner. Using cost segregation can help you shelter boot from federal taxes in an exchange, reduce your overall tax bill, and increase after-tax yields.
Investors are often shocked that they haven’t learned of a powerful tax savings tool call trade-up basis. One cannot complete an efficient exchange that achieves their goals in a tax-efficient manner without first understanding terms such as “carryover basis” and “trade-up basis” and how these concepts work in an exchange.
DSTs are an efficient way to reinvest your 1031 proceeds. A Delaware Statutory Trust, or DST, has become a very effective tool for helping real estate investors accomplish their goals in 1031 exchanges. In fact, it is so effective that I feel my web page would be incomplete without a brief explanation of what a DST is. That being said, almost all the goals that can be accomplished with a DST can also be accomplished with other types of real estate.
This article will help you how these terms are used when planning to save taxes. When you are planning a tax-efficient exchange that will accomplish your goals, debt is often a critical piece of the puzzle. The terms “leverage” and “LTV” are used to describe amounts of debts on properties you sell or properties you buy in an exchange.
Much of the tax preparation community believes that you can’t use a 1031 exchange to save taxes on a gain from a partnership. They are wrong about this. Drake’s case presents a unique opportunity to save on taxes. He is anticipating a gain of approximately $1,000,000 from the sale of a property owned by a partnership. He should be able to shelter most of the gain using a 1031 exchange.
Brett and Angel have dreams. When we first met them, Angel said, “I have lived in the same house with Brett for more than 30 years, and I want a new kitchen.” Brett said, “I want to travel Europe before I get too old to do it.” Because they weren’t willing to sacrifice those dreams to avoid the IRS, Brett and Angel may have been our favorite case in recent memory.
Hunter and Dolores were lucky enough to have lived longer than they could run their business, and the building ended up becoming their retirement fund. They needed liquidity, so they sold. The sale of the building qualified for a 1031 exchange.
Ralph just retired and needs to sell his rental as soon as possible, but it’s barely breaking even. Ralph’s situation is unique, and while he didn’t complete an exchange – it actually ended up benefiting him.
