Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
The 1031 exchange has been a powerful vehicle for real estate investors to defer capital gains taxes. It has always seemed like the way to go, but I had this opportunity back in 2015, and even then, the time restrictions and available supply just felt like too much to pull off. The qualified intermediary with whom I spoke practically talked me out of it. I don't think he was aware of the type of properties one could exchange into, and for that reason, limited my view as I only opened my mind to a similar property.
Had I only done more homework, and broadened my perspective, I may have discovered that I could take my gain and invest it into a real estate syndication and reap incredible rewards. We recently had an investor "exchange" into one of our syndications, and I have to say that I am a bit jealous. I think I would have preferred his $75k annual income stream to my $100k tax burden. Not to mention his healthy share of the backend. A generous chunk of equity can serve you well in this world. Be wise with it.
Cost Segregation Expert and Investor · Lakewood, NJ · Member since 2017 · 1k+ posts · 1k+ votes
5y
@Joe Splitrock it would have to be done through a TIC structure as @Percy N. suggested above. This should have been made clear by the OP. In that case, the basis would transfer into the TIC, which you could continue to exchange upon the sale of that syndication. Otherwise, like any exchange, you are correct, that once you sell without a 1031 you will be hit with the capital gains, and recapture taxes.
Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
5y
@Rick Martin when you say "....I could take my gain and invest it into a real estate syndication" do you mean invest alongside the syndication in a TIC structure or are you referring to a DST? Or something else?
@Rick Martin when you say "....I could take my gain and invest it into a real estate syndication" do you mean invest alongside the syndication in a TIC structure or are you referring to a DST? Or something else?
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
5y
How does that work with transferring basis? I understand it delays taxes on the property you are selling, but it would also reduce your tax deduction on the syndication income. There is also depreciation recapture on the backend, so you would pay taxes on all the transferred basis when you sell.
Cost Segregation Expert and Investor · Lakewood, NJ · Member since 2017 · 1k+ posts · 1k+ votes
5y
@Joe Splitrock it would have to be done through a TIC structure as @Percy N. suggested above. This should have been made clear by the OP. In that case, the basis would transfer into the TIC, which you could continue to exchange upon the sale of that syndication. Otherwise, like any exchange, you are correct, that once you sell without a 1031 you will be hit with the capital gains, and recapture taxes.
Rental Property Investor · Redondo Beach, CA · Member since 2017 · 411 posts · 477 votes
5y
@Joe Splitrock@Yonah Weiss beat me to the punch. Yes, once you stop exchanging, you would have to pay the piper, as with any exchange. One has to stay in contact with the syndication and see what is on the horizon for future opportunities. Since three like-kind properties need to be identified in an exchange, this could be one of those.
It is important to identify the exit strategies as well. Ideally, it could be a long term buy and hold, where the asset is continually refinanced, cash is pulled out, but you are not creating a taxable event.
Full disclosure btw. My point is here that it can be done, and is being done - and everything by the book. However, it is the qualified intermediary and the attorney that will be keeping the protocol compliant, so it is, of course, best to be guided through the entire process by the qualified professionals. I was the conduit in the opportunity that I mentioned.