All
Members
Companies
Blog
Forums
Podcast
Webinars
    User Log in  /  Sign up
  • Forums
    Newest Posts Trending Discussions Followed Forums Real Estate News & Current Events General Landlording & Rental Properties Buying & Selling Real Estate Deal Analysis See All
  • Education

    Read

    BiggerPockets Blog BPInsights: Expert Analysis Coronavirus Content & Resources Guides Glossary Reviews Member Blogs

    Watch

    Webinars Video Library Financial Independence Blueprint Intro to Real Estate: Rentals

    Listen

    BiggerPockets Real Estate Podcast BiggerPockets Money Podcast BiggerPockets Business Podcast Real Estate Rookie Podcast Daily Podcast (Audio Blog)

    Topics

    Business Operations Finance Finding Deals Property Management Property Types Strategy
  • Network

    Recommended Vendors

    Real Estate Agents Mortgage Lenders Companies Hard Money Lenders Contractors Investment Companies

    Search

    Members Events Jobs
  • Tools

    Calculators

    Rental Property Fix and Flip BRRRR Rehab Estimator
    Wholesaling Mortgage Payment 70% Rule Airbnb

    Services

    BPInsights: Property Insights Tenant Screening Property Management Lease Agreement Packages

    New Feature

    BPInsights (beta)

    Quickly analyze a property address or ZIP Code to compare your rent in your neighborhood.

    Analyze a property
  • Find Deals
    Real Estate Listings Find Foreclosures External Link Ads, Jobs, and Other
  • Bookstore

    Real Estate Books

    Profit Like The Pros Bidding to Buy See all books

    Featured Book

    BiggerPockets Wealth Magazine book cover
    BiggerPockets Wealth Magazine

    Written by financial journalists and data scientists, get 60+ pages of newsworthy content, expert-driven advice, and data-backed research written in a clear way to help you navigate your tough investment decisions in an ever-changing financial climate! Subscribe today and get the Oct/Nov issue delivered to your door!

    Get the Magazine
  • Pricing
Log In Sign up
User
Quick search links
Podcast Hard Money Lenders Books Washington
ForumsArrow1031 ExchangesArrow1031 exchange advice
  • Newest Posts
    • Newest Posts
    • Unanswered Discussions
  • Trending
    • Top Discussions
    • Trending Discussions
  • Browse Forums
Search Nova
Create post

1031 exchange advice

9 Replies

  • Share on Facebook
  • Share on Twitter
  • Share on LinkedIn
Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Team and Taxes & Accounting
  • Posts 50
  • Votes 17

Tyler Santos
Realtor from Chanhassen, MN

posted about 1 year ago

I’m looking for some advice about 1031 exchanges. My grandfather in Massachusetts is going to sell his house to take advantage of the tax break he gets since he lost his spouse (my grandmother). He’s 89 years old and wants to travel and live out the remaining years of his life by traveling and enjoying himself. The house, however, is a 4 bedroom 3.5 bath, 3,500 sq. Ft house on Nantucket Island and was recently appraised at 1.7 million. I’m wondering, and I hope this doesn’t come across as shrewd or greedy, is there a way he can get what he wants without selling the house or at least parlaying it into something bigger than he could leave behind to his grandkids and that we could benefit from for the next however many years/generations. Maybe a 1031 exchange is way off base but there has to be something better than selling a house of that size and value on and Island that has very high appreciation rates. Any advice/ideas/suggestions would be greatly appreciated!

Rotate Log in or sign up to reply
user profile avatar
  • Posts 85
  • Votes 21

Sam Horton
Real Estate Agent from Massachusetts

replied about 1 year ago

@Tyler Santos Does your Grandfather own the property outright? Would he consider renting the property? I know Nantucket has very steep rental prices during the summer months. A 1031, in my opinion, would be a legacy move, but in order to use it, you would have to sell that property and buy propertie(s) of greater value at which point he could than pass down those assets.

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Team and Taxes & Accounting
  • Posts 50
  • Votes 17

Tyler Santos
Realtor from Chanhassen, MN

replied about 1 year ago

Hi Sam, yes he does own the property outright. I also thought the rental idea could work too but since my brother and I have become interested in real estate I thought there would be a better way to use the sale of his house to leave something for his grandchildren. Because right now, from what my mother has said, he plans on leaving each grandchild with something like $10k. My idea, and I don't know enough about 1031's to know if this is how it works, would be for him to find a multi-family unit or units somewhere, live in one, rent out the others and let my brother and I manage that aspect of it for him. But yes, maybe for now the best thing would be for me to convince him to rent the house rather than sell it. We all just think it would be a shame to let that beautiful house and piece of property go and not keep it in the family or at least turn it into something that creates cash flow for years to come and is something for my brother and I to start building our own portfolio of rental properties (not on Nantucket).

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Rentals and Team
  • Posts 1.2K
  • Votes 1.0K

Lien Vuong
Real Estate Agent from Boston, MA

replied about 1 year ago

@Dave Foster would definitely have some insight in this. 

Short answer to your question is yes, long answer is that it sorta depends .. 

High level parameters of 1031 Exchange is that it is real estate and you are moving once income producing property into another. Can your grandfather prove that he used it as an investment property? That's one metric and then he can sell and move it into another investment. Given that he likely has a lot of capital gains here, it would be a good idea for him to participate in a Opportunity Zone Fund where he can take it gains and defer it into a Fund and erase the gains after 10 years. There's also Tenancy in Common (REIT) style exchanges where he doesn't have to be a 'landlord' but still satisfies the exchange metric without the headaches of tenants.


Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subjects:
Team and Taxes & Accounting
  • Posts 50
  • Votes 17

Tyler Santos
Realtor from Chanhassen, MN

replied about 1 year ago

@Lien Vuong I am not sure if he could prove it was used an investment property but I will look into that a little bit more closely. I will also mention to him the REIT exchange as well, he might be open to that idea as well. Thank you so much for taking the time to respond, I learned something new today!

Rotate Log in or sign up to reply
user profile avatar
  • Posts 98
  • Votes 79

Michael Skoczylas
Attorney from Southfield, MI

replied about 1 year ago

The linchpin here would be if he could prove that the property was investment property. If he can't a 1031 is not possible. 

I do think you have some great options though. Rent it out now to give him some income, and then if he decides to switch into MFH he can then 1031 (since he used it for investment purposes) at that time. He can also rent it out now until death, then his heirs can decide if they want to continue renting it or sell it - and since they get a step up in basis they would pay no tax. 


Overall its a good situation to be in, and he is lucky that you are thinking about this already.  

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subject:
Maintenance
  • Posts 2.3K
  • Votes 2.5K

Bill Brandt
Investor from Las Vegas, NV

replied about 1 year ago

Sell and take the tax free gain, that beats tax deferred every time. 

Unless you’d tell your 80 grandpa to go out and buy a $1.7million house if he inherited cash, there’s no reason for him to keep the one he owns. The psychological name for the bias escapes me but the fact that he already owns it makes it seem like a better deal to keep something he would never go out and buy. 

Rotate Log in or sign up to reply
user profile avatar
Check Rosette Top Subject:
Taxes & Accounting
  • Posts 6.1K
  • Votes 6.0K

Dave Foster
Qualified Intermediary for 1031 Exchanges from St. Petersburg, FL

replied about 1 year ago

Thanks for the shout out @Lien Vuong .  @Tyler Santos , there actually is a way depending on how flexible your Grandfather can be.  In general here's what we know without too many numbers.


1. Half of that property got a step up in basis when your Grandmother so half of the gain went away.

2. Grand pa could sell now and take another $250K of profit tax free.

3. Even doing this he's probably looking at a taxable event because of the size.

4. Right not it would not qualify for 1031 treatment as it was his primary residence.

But there is a scenario where he may be able to get it all.  If he wants to travel now and you could  fund him for a year or so.  He moves out of that house and with your help turns it into a rental.  Now its an investment property so after a year he could sell it.  But the landscape will have changed dramatically.

1. He can still get the step up in basis benefit from your grandmother's passing.

2.He will still get an additional $250K tax free because he still meets the 2 out of 5 residency requirment

3. But now he can do a 1031 because it's an investment property.  So he can 1031 into a good investment property that you can manage, or he can 1031 into passive opportunities that will provide him income for the remainder of his life.  

This is just another twist on exit strategies that we wrote about here - https://www.biggerpockets.com/blog/1031-exchange-files-3-buy-hold-exit-strategies

Rotate Log in or sign up to reply
user profile avatar
  • Posts 519
  • Votes 275

Storm S.
Real Estate Agent from Santa Barbara, CA

replied about 1 year ago

@Lien Vuong I second the opportunity fund, there is a publicly traded REIT that qualifies for the opportunity zone tax benefits I believe there called belpointe REIT or something very close to that

Rotate Log in or sign up to reply
  • 1
Related Resources 1031 Exchanges
5 Extreme Methods I Use to Save Time in My Workday
Gather Your Dream Team: Must-Have Real Estate Team Members
The (Brutal) Truth About Why You Can’t Find a Partner
LLC vs. S Corporation: Which Is Better for Real Estate?
6 Real Estate Side Hustles to Make Extra Money & Gain Experience
Resources Read, see, and learn more!
Link Real Estate Investment Calculators
Link BiggerPockets Blog
Link Path to Purchase
Link Mortgage Loans
Link Find a Contractor
Link Real Estate Agents
Link Hard Money Lenders
Link Real Estate Listings

Top Contributors

Bill Exeter
Bill Exeter
San Diego, CA
9.29
Score
Dave Foster
Dave Foster
St. Petersburg, FL
7.14
Score
Vince Coffeen
Vince Coffeen
Minneapolis, MN
2.08
Score
Mike B.
Mike B.
Madison, WI
1.82
Score
Jacqueline Gardiner
Jacqueline Gardiner
Punta Gorda, FL
1.81
Score

1031 Exchanges Trending Discussions

  • Question about 1031 exchange property and who can rent from u?
    2 Replies
Log in Sign up

Log in

Forgot password?

If you signed up for BiggerPockets via Facebook, you can log in with just one click!

Log in with Facebook

Or
btn_google_dark_normal_ios Created with Sketch. Continue with Google

Let's get started

We just need a few details to get you set up and ready to go!

Use your real name

Use at least 8 characters. Using a phrase of random words (like: paper Dog team blue) is secure and easy to remember.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.

Or
btn_google_dark_normal_ios Created with Sketch. Continue with Google

Why create an account?

Receive a free digital download of The Ultimate Beginner's Guide to Real Estate Investing.

Connect with 1,000,000+ real estate investors!

Find local real estate meetups and events in your area.

Start analyzing real estate properties, we do the math for you.

It's free!

Explore

  • Membership
  • Community
  • Education
  • Marketplace
  • Tools
  • FilePlace
  • REI Resources
  • Perks
  • Glossary
  • Reviews
  • iOS App
  • Android App

Company

  • About Us
  • Press
  • Advertising
  • Careers
  • Stats
  • Contact Us

Important

  • Editorial Guidelines
  • Terms of Use
  • Rules
  • Privacy
  • FAQ

Social

  • Facebook
  • Twitter
  • YouTube
  • Instagram
© 2004-2021 BiggerPockets, LLC. All Rights Reserved.