Florida NNN properties with credit tenants used in a 1031 Exchange
are a powerful tool for building and preserving wealth.

A tax-deferred exchange allows you to preserve your wealth by reinvesting in “like-kind” assets. When you sell your investment property you may incur federal capital gains taxes and, in some states, you may incur state taxes as well. You should ask your tax advisor or attorney if you meet the requirements of a tax-deferred exchange under Section 1031 of the Internal Revenue Code.

Frequently Asked Questions about 1031 Exchanges

What is a 1031 Exchange?

A 1031 exchange is a tax-deferral strategy named after Section 1031 of the Internal Revenue Code that allows an investor to defer paying capital gains tax on the sale of a property, by using the proceeds from the sale to purchase a “like-kind” replacement property. The main benefit of a 1031 exchange is that it allows the investor to defer paying taxes on the gains from the sale of the first property, and instead use that money to purchase a replacement property, potentially increasing their overall investment portfolio. To be eligible for a 1031 exchange, the replacement property must be of “like-kind” to the property being sold and the exchange must be completed within specific time frames as outlined by the IRS.

 

Patrick Moorton is President and Broker of Income Realty Advisors, Inc., a Florida based Commercial Real Estate Brokerage specializing in Florida NNN Properties for Sale, 1031 Exchange Resources, Site Selection for Retail and Multifamily Developers.

Income Realty Advisors, Inc.

Patrick Moorton 1-(239) 272-1640

www.Floridannn.com

 

 

All information provided is obtained from sources believed to be reliable but not guaranteed. Please note that the information provided by me, OpenAI’s language model “ChatGPT”, is for general informational purposes only and does not constitute legal, financial or tax advice. I am not a licensed financial advisor or attorney and any information provided should not be relied upon as such. It is important to conduct your own research and/or consult with a licensed professional to determine the best course of action for your individual needs. I make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the information provided through me for any purpose. Any reliance you place on such information is strictly at your own risk.

What types of property are eligible for a 1031 exchange?

To be eligible for a 1031 exchange, the property must be considered “like-kind” by the Internal Revenue Service (IRS). Generally, “like-kind” properties are defined as real estate used for investment or business purposes, such as rental properties, commercial buildings, raw land, and more. However, there are some restrictions on the type of property that can be exchanged. For example, the following types of property are not eligible for a 1031 exchange:

  1. Personal property, such as artwork, collectibles, and vehicles.
  2. Inventory or stock in trade.
  3. Stocks, bonds, or other securities.
  4. Partnership interests.
  5. Residential properties used as rental properties with four or fewer units.

It’s important to consult with a qualified 1031 exchange intermediary or a tax professional to determine the eligibility of a specific property for a 1031 exchange, as well as to ensure that the exchange is completed correctly and in accordance with IRS guidelines.

What are the time limits for completing a 1031 exchange?

The time limits for completing a 1031 exchange are as follows:

  • Identification deadline: The taxpayer must identify potential replacement properties within 45 days from the date of the sale of the relinquished property.
  • Closing deadline: The taxpayer must close on the replacement property within 180 days of the sale of the relinquished property or the due date of the tax return for the year in which the relinquished property was sold, whichever is earlier.

It’s important to note that these time limits are strict and must be adhered to in order to defer paying taxes on the capital gains from the sale of the relinquished property. In addition, the taxpayer must follow specific guidelines for identifying replacement properties and for completing the exchange transaction to ensure that the 1031 exchange will be considered valid by the IRS.

Patrick Moorton is President and Broker of Income Realty Advisors, Inc., a Florida based Commercial Real Estate Brokerage specializing in Florida NNN Properties for Sale and Site Selection for Retail and Multifamily Developers.

Income Realty Advisors, Inc.

Patrick Moorton 1-(239) 272-1640

www.Floridannn.com

 

 

All information provided is obtained from sources believed to be reliable but not guaranteed. Please note that the information provided by me, OpenAI’s language model “ChatGPT”, is for general informational purposes only and does not constitute legal, financial or tax advice. I am not a licensed financial advisor or attorney and any information provided should not be relied upon as such. It is important to conduct your own research and/or consult with a licensed professional to determine the best course of action for your individual needs. I make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the information provided through me for any purpose. Any reliance you place on such information is strictly at your own risk.

How does the exchange process work?

The 1031 exchange process typically involves the following steps:

  1. Identifying the intention to do a 1031 exchange: The taxpayer must indicate their intention to defer taxes on the sale of their relinquished property by following the guidelines set forth by the IRS for a 1031 exchange.
  2. Identifying potential replacement properties: The taxpayer must identify potential replacement properties within 45 days of the sale of the relinquished property. The taxpayer can identify up to three replacement properties, regardless of their fair market value, without having to acquire all three.
  3. Using a qualified intermediary: The taxpayer must use a qualified intermediary (QI) to facilitate the exchange. The QI holds the proceeds from the sale of the relinquished property and facilitates the purchase of the replacement property.
  4. Closing on the replacement property: The taxpayer must close on the replacement property within 180 days of the sale of the relinquished property or the due date of their tax return for the year in which the relinquished property was sold, whichever is earlier.
  5. Completing the exchange: The QI will ensure that all necessary paperwork is completed and that the exchange is structured in accordance with IRS guidelines.

It’s important to note that the 1031 exchange process can be complex and it is recommended to consult with a tax professional or 1031 exchange intermediary to ensure that the exchange is completed correctly. Additionally, it is important to follow all IRS guidelines to ensure that the exchange will be considered valid and the taxes will be deferred on the sale of the relinquished property.

Patrick Moorton is President and Broker of Income Realty Advisors, Inc., a Florida based Commercial Real Estate Brokerage specializing in Florida NNN Properties for Sale and Site Selection for Retail and Multifamily Developers.

Income Realty Advisors, Inc.

Patrick Moorton 1-(239) 272-1640

www.Floridannn.com

 

 

All information provided is obtained from sources believed to be reliable but not guaranteed. Please note that the information provided by me, OpenAI’s language model “ChatGPT”, is for general informational purposes only and does not constitute legal, financial or tax advice. I am not a licensed financial advisor or attorney and any information provided should not be relied upon as such. It is important to conduct your own research and/or consult with a licensed professional to determine the best course of action for your individual needs. I make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the information provided through me for any purpose. Any reliance you place on such information is strictly at your own risk.

Why Doctors Should Buy Single Tenant Net Leased Properties

WRITTEN BY: PATRICK MOORTON – MAR• 22•12

With changes to doctor compensation on the horizon due to health care reform it would be wise for doctors to start looking for investments that can produce reliable streams of income. Single Tenant Properties with long term leases to credit worthy tenants are perfect investments for doctors. A Triple Net Leased Property is ideal for a doctor because the tenant pays all maintenance, taxes, and insurance on the property. These properties require little or no management and will take a lot less time and effort than watching the stock market.

Purchasing a single tenant net leased property with a billion dollar national investment grade  tenant such as Walgreens, CVS, McDonald’s, Bank of America, or JP Morgan Chase can allow a doctor to pursuit leisure activities in his free time while still earning money. The goal is to purchase a property with 15 to 25 years remaining on the lease that will allow the doctor to build equity in the property as he moves closer to retirement. The conservative use of leverage should allow a doctor to purchase a property with a self amortizing loan that will pay off the property over the 15 to 25 year term of the lease. This will leave the doctor with a valuable property that is free and clear of debt that has been paid for through the long lease of the investment grade tenant.

Patrick Moorton is President of Income Realty Advisors Inc. Owner and operator of www.Floridannn.com, and www.nnnorlando.com, online resource for investors buying and selling Single Tenant Net Leased Properties with Credit Tenants in Florida. For more information call (239)-272-1640

Real Estate Exit Strategies

WRITTEN BY: FIRST AMERICAN EXCHANGE COMPANY – JAN• 07•11

When interest rates rise and the real estate market starts turning “softer,” you may ask yourself the question “Do I want to continue owning real estate, or should I sell and consider other investment alternatives?” There are many wise investment alternatives, but the problem with selling real estate to get into them is that the capital gain tax will be triggered, and you will have less equity to reinvest.

There are, however, a few options that offer the ability to exit the real estate market while reducing or avoiding the capital gain tax.  Many of these strategies are complex and their suitability is totally reliant on your particular facts and circumstances, so be sure to talk with your tax or legal advisor before pursuing any one of these alternatives.

Option 1:  The 1031 Exchange

Internal Revenue Code Section 1031 applies to “property held for productive use in a trade or business or for investment,” and it allows for the deferral of capital gain tax if such property is exchanged solely for property of “like-kind.”  The broad definition of like kind can help investors in many ways.  For example, owners tired of the property management headaches of several properties can leverage their equity into one larger one.  IRC Section 1031 also has broad geographic application, applying to real estate throughout the United States.  For example, if properly structured a couple owning rental houses in California who have kids attending college out of state can exchange their California rentals for investment properties that their children can rent from them while attending college.  Many investors exchange real estate all of their lives and leverage their unused tax dollars to purchase real estate that generates greater and greater returns.  Once investors retire, they can then sell real estate and take.

the cash, paying the lowest capital gain tax possible due to their income tax retirement bracket. Even better yet, investors can leave their real estate holdings to their children, who will inherit the property at a stepped up basis, thereby eliminating any gain that had accumulated throughout the years!

Option 2:  An Installment Sale

An installment sale, aka seller carryback note or seller financing, works best for real estate investors who want to sell their real estate but don’t need a lump sum payment.  Instead of receiving a lump sum of money at the time of sale, buyers pay the seller monthly income at a rate and term to be decided by the seller.  Taxes are not actually avoided nor totally deferred with a note; they are due yearly based upon the amount of payments the seller receives.  The Charitable Remainder Trust is also based upon this “money over time” concept.  The tax benefit of installment reporting is that because taxes are not due in one lump sum at the time of sale, interest is earned on the deferred dollars over the years. Always discuss the transaction with your tax advisor, however, as installment sale reporting may be disallowed or restricted if not structured properly.

Option 3:  The Charitable Remainder Trust (CRT)

A CRT allows an investor to receive lifetime monthly payments after transferring the asset to a trust.  With this option, the asset is transferred to a trust, the trust can sell the property without paying tax and makes periodic distributions to the investor, and the charity inherits any remaining funds once the investor dies.  The main advantage of a CRT is that in addition to monthly cash flow and the satisfaction of one’s philanthropic objectives, the donor qualifies for a charitable income tax deduction, which is usually the present market value of the remaining interest to the charity.  Additionally, if the deduction is not all used during the first year of contribution, it may be carried forward and utilized over five years.

Option 4:  Joint Use of IRC Sections 121/1031

When a personal residence is sold, IRC section 121 allows for capital gain tax exclusion of up to $250,000 if a taxpayer is single, and $500,000 if a taxpayer is married, as long as the residence has been owned and personally used by the taxpayer for an aggregate of two of the preceding five years before the sale.  With the enactment of Rev. Proc. 2005-14, there is now a way to exclude gain in excess of the $250,000/$500,000 limits.  For example, if a house was bought for $100,000 20 years ago, and it is now being sold for $1 million, the taxable gain is $900,000.  Under the old law, taxes would be owed on $400,000 of gain. Under the new law, if a married couple first converts the house to a rental, they can exclude $500,000 tax free at closing under IRC.

Section 121, and then perform a 1031 exchange and buy another rental house for $500,000, to exclude the remaining $400,000 of gain!

Option 5:  Gifting Real Estate Interests

If you wish for your children to own a portion of your real estate while you are still alive, you can gift portions of the real estate to them each year in the amount of the annual gift tax exclusion ($13,000), or if a Family Limited Partnership (FLP) is set up, you can gift limited partnership interests to the children using the annual gift tax exclusions (plus the FLP can be discounted).  One caveat: Unlike inheriting real estate in which the heir’s basis is the fair market value of the property as of the date of inheritance (“stepped-up” basis), a donee’s basis from a gift is the same as the basis of the donor, so your children may wish to consider a 1031 exchange or other options in this newsletter when they sell their real estate to avoid a big capital gain consequence.

There are many other strategies that can be used in lieu of these options, and often the best results come from a combination of techniques.  There are also many risks and disadvantages associated with all of the options; for example, Charitable Remainder Trusts can be costly to structure. In addition to consulting with a tax advisor, investors should seek the advice of a real estate attorney with experience in tax and business, and also consider the advice of a financial planner who can offer even more options for one’s investment portfolio.

First American Exchange Company
800.556.2520

First American Exchange is a Qualified Intermediary and is precluded from giving tax or legal advice. You must consult with your tax or legal advisor about your specific circumstances. First American Exchange is a wholly owned entity of First American Title Insurance Company.

www.firstexchange.com