1031 exchange, syndication, taxes

5 Replies

I recently learned that a syndication can sell (or refinance) a property, and you can withdraw your funds (and yourself) from the syndication. Also, though very difficult, the syndication can 1031 into a larger property. Here's my question. If I'm in a syndication and I want to get out during the sell or refinance, would I be able to use my gains (entire funds) to 1031 exchange into a qualifying property, by myself, to defer taxes. Or, would it be pointless since the original funds were taxed, the yearly returns were taxed, and, since it's typically a minimum 3-5 year investment, is there any capital gains tax due to the length of the investment? 

@John Phillips , That's the single biggest roadblock in maximizing tax mitigation when going into a syndicated product.  Unless the project has been set up as a tenants in common project you cannot 1031 your part of the proceeds out at sale.   You will pay the tax but then have a clean slate with no need to do a 1031 at that point.  Reinvest as you will - or don't. 

I think @David Thompson , a good syndicator himself has an article he's written on this as well.

Hi John,

Here's a blog on this topic you might find helpful.  As @Dave Foster mentions, 1031 into and out of the syndication (sponsor) from your own investments (i.e sale of a SFR property) or out of the syndication into another of your personal investments (i.e. another SFR property you want to buy) is prohibited unless the syndicate has been established as a DST or TIC. However, it is possible for the investors in the syndication deal to 1031 into that syndicates next deal at sale, hence deferring the capital gains tax.

https://www.biggerpockets.com/blogs/9145/65331-syn...

@Lane Kawaoka , sorry you regret that 1031 years ago.  You may want to consider the benefit you had over those years of using the deferred tax dollars to continue to grow your portfolio.  

You seem like a pretty savvy investor.  If you had deferred the taxes for just 7.2 years making 10% on the money (the rule of 72) you made enough that you are now able to pay those taxes with just the profit off the deferred tax and still keep the tax in your pocket to go into the syndications.  That doesn't seem like such a bad deal.

Now it's time for you to go into syndications and you've got more to invest because of the 1031 you did a few years ago.  Congratulations.

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