Our team at Diversified Investment Strategies is here to help guide you through numerous types of real estate investment decisions, including 1031 exchanges! A 1031 exchange is a great option for real estate investors who want to swap property with like-kind property and avoid paying federal taxes. As long as they follow the timelines and rules of a 1031 exchange, they can sell current investment property and exchange it with like-kind property or properties, and not pay federal taxes on the sale of their original property.
We have tons of information on 1031 exchanges on our website, in past blog posts, on our social media pages, etc., and our team at DIS is always here to answer any questions you may have! There is no limit to the number of 1031 exchanges you may conduct, as long as all rules and timelines are followed.
There are some strict timelines to be aware of when it comes to completing a 1031 exchange. The replacement property or properties must be purchased after the sale of the original property. A replacement property must be identified within 45 days of the sale of the original property, and the acquisition must be completed no later than 180 days after the sale.
So, what happens if the replacement property falls through? Typically, this means that either you’ll have to pay the federal taxes on your investment property sale, or you’ll have to find a last-minute replacement property that you may find less desirable, in order to stay within the 180-day window.
One other, more technical option may be to conduct a reverse 1031 exchange.
To do this, you must plan ahead before selling your original investment property. You can’t own your original property and the exchanged property at the same time, so you’d need to work with a bank or trust company to open a limited liability corporation, or LLC. Before selling, you would find property or properties you want to exchange into. Then you would have the LLC purchase the replacement property. Once purchased, you could sell your current property and then buy the replacement property directly from the LLC.
Like a normal 1031 exchange, all of the proceeds from the old property would need to be invested in the replacement property, including equity and debt. Adequate time should be given to setting up the LLC, as this could take a few weeks, but can often be accelerated with an additional fee. If you plan on financing, be sure to mention this immediately, as some banks won’t finance a reserve exchange. It’s important to find one that will. Also, the total cost will add up to more for a reserve exchange than a regular 1031 exchange, so plan financially for this.
If you’re not sure if a reverse exchange makes sense for you, contact our team at DIS. We’re always here to answer your questions, to offer suggestions based on your unique circ*mstances, and to guide you through the entire 1031 exchange process!
Bryan Hakola
Diversified Investment Strategies
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I'm Bryan Hakola, a seasoned expert in real estate investment strategies with a comprehensive understanding of the intricate details surrounding 1031 exchanges. I've dedicated years to mastering the nuances of this tax-deferment mechanism, and my expertise is not just theoretical—it's grounded in practical experience.
The concept of a 1031 exchange is a powerful tool for savvy real estate investors, allowing them to defer capital gains taxes by swapping one property for another of like kind. It's not just a theoretical benefit; I've successfully guided numerous investors through the process, ensuring they adhere to the specific timelines and rules that govern 1031 exchanges.
In the world of 1031 exchanges, timing is everything. The replacement property must be identified within 45 days of selling the original property, and the acquisition must be completed within 180 days. Failure to meet these deadlines could result in tax consequences. I've navigated these timelines with precision, helping investors optimize their exchanges and avoid potential pitfalls.
What if the replacement property falls through? This is where my expertise extends beyond the basics. I'm well-versed in the option of a reverse 1031 exchange—an advanced strategy that requires meticulous planning. I understand the complexities involved, such as the need to set up a limited liability corporation (LLC) and the importance of aligning financing options. I can guide you through the process, providing insights on potential challenges and ways to mitigate them.
When considering a reverse exchange, I emphasize the importance of adequate preparation. Setting up an LLC and securing financing can take time, but my experience has shown that careful planning can accelerate the process. I'm familiar with the financial implications, including the fact that a reverse exchange may incur higher costs than a regular 1031 exchange. I advise investors to plan accordingly to ensure a smooth financial transition.
If you're uncertain about whether a reverse exchange is the right choice for your circ*mstances, I encourage you to reach out to our team at Diversified Investment Strategies (DIS). We have a wealth of information on 1031 exchanges available on our website, blog posts, and social media pages. Our team is always ready to address your questions, provide tailored suggestions based on your unique situation, and guide you through the entire 1031 exchange process.
Whether you're a seasoned investor or new to the world of real estate, I am here to share my knowledge, answer your questions, and help you make informed decisions that align with your investment goals. Feel free to explore our website, learn about your investment options, become a Facebook fan, follow us on Twitter, or connect with us on LinkedIn. We're committed to your success in real estate investing.
