How do I treat the income I make monthly off of properties purchased with a 1031?
In the future, if I sell a property and buy the next one using a 1031 exchange, are there any restrictions on what I can do with the monthly rent I make on that property, or can I treat the income just like I would if I bought the property in the traditional way?
Alex, it would be treated the same as it had been before (taxable ordinary income). I assume you asked the question because you are curious if there are continued tax benefits like tax deferral with an IRA rollover.
#1 1031 Exchanges Contributor
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#1 1031 Exchanges Contributor
- Qualified Intermediary for 1031 Exchanges
- St. Petersburg, FL
@Alex Deal, Its just regular income. The form 8824 your accountant files to report the 1031 will move the basis of your old property into your new property. So the gain (and deferred tax) are rolled forward). And just waits until your next sale.
One other thing that people often don't know is that you can also refinance that property anytime you want. Some times folks will hesitate to do a 1031 because they want or need cash from their sale. It is perfectly fine to complete your 1031. and immediately after, do a cash out refinance. The refinance is not taxable. But it does put cash in your pocket while keeping the tax from your sale deferred. And best of all - the tenant in paying the mortgage :)
Quote from @Dave Foster:
@Alex Deal, Its just regular income. The form 8824 your accountant files to report the 1031 will move the basis of your old property into your new property. So the gain (and deferred tax) are rolled forward). And just waits until your next sale.
One other thing that people often don't know is that you can also refinance that property anytime you want. Some times folks will hesitate to do a 1031 because they want or need cash from their sale. It is perfectly fine to complete your 1031. and immediately after, do a cash out refinance. The refinance is not taxable. But it does put cash in your pocket while keeping the tax from your sale deferred. And best of all - the tenant in paying the mortgage :)
Great info! Thank you
Quote from @Dave Foster:
@Alex Deal, Its just regular income. The form 8824 your accountant files to report the 1031 will move the basis of your old property into your new property. So the gain (and deferred tax) are rolled forward). And just waits until your next sale.
One other thing that people often don't know is that you can also refinance that property anytime you want. Some times folks will hesitate to do a 1031 because they want or need cash from their sale. It is perfectly fine to complete your 1031. and immediately after, do a cash out refinance. The refinance is not taxable. But it does put cash in your pocket while keeping the tax from your sale deferred. And best of all - the tenant in paying the mortgage :)
Can we still claim depreciation on the rental property while filing taxes for the newly bought property similar to regular investments?
#4 1031 Exchanges Contributor
- Investor
- Las Vegas, NV
Not only can you, you must keep depreciating @Kumar Nag. Otherwise the IRS will just pretend you did and tax you on the depreciation recapture you didn’t take.
Alex-
@Dave Foster helped me with the same issues you have. I have been reading his book on 1031's. It has changed the way I buy and sell properties. I was able to buy properties using the 1031 process with no money down. A cash-out refi is a good option if you need it. Using the strategies in his book, I sold two SFR's and bought two duplexes with no money down.
Lifetime Tax-Free Wealth: The Real Estate Investor's Guide to The 1031 Exchange
by Dave Foster