All Forum Posts by: Bernard Reisz

@Nathan Shankles

IRA money - Traditional and/or Roth - can be used for real estate in a multitude of ways. But, as @Taylor L. posted, there are rules to be aware of (and followed). 

Mixing your personal investments with your IRA investments leads to compliance complexities and is discouraged. Same for mixing your Traditional IRA and Roth IRA. That's not to say that it's not done, just that we don't encourage it.

Can you use the profits outside the IRA? To the extent that an asset belongs to your IRA, so do all the profits from the ownership of that asset. Just as you can't use mutual fund dividends from IRA-owned securities for non-IRA expenses, the same holds true for real estate rental income produced by an IRA-owned property. Ditto for hard money interest, LP distributions, etc.

@Daniel Dietz Cost seg does not require an appraisal, as it's based on cost basis (that's why it's called cost seg) - not on fair market value. 

Similarity, debt on the asset impacts your equity - not your cost basis. 

@Clint G. 

• Under (current) Section 1031, tax deferral is available for the exchange of real property held for productive use in a trade or business or for investment.

• Also, real property held primarily for sale is specifically excluded.

• No direct specification of the holding period requirement period is made in the tax code.

• In general, the courts have been more liberal than the IRS in defining what qualifies.

• Technically, properties can be segregated and categorized with a single taxpayer holding some assets primarily for sale and others primarily for investment.

Without foresight and planning, a serial flipper is not well-positioned to challenge the IRS on this matter.

@Daniel Dietz Cost seg is a great tax tool... for the right taxpayer. Roth conversion will create income to you (not to the 401k plan), but the cost seg is being done on properties that are not part of your personal tax assets (rather the 401k plan assets).

@Yonah Weiss No cost seg discussion is complete w/o your participation :)

@Ben Feder To expand on @Lauren Hogan's response. A Qualified Intermediary, or QI, is a key component of a 1031 exchange transaction that falls within IRS safe harbors. 

I know that technical definition may just raise a whole new set of questions, so to preempt those...

When doing a "deferred 1031 exchange" in which you sell one property and only at later date acquire the replacement property, the taxpayer may not receive (or constructively receive) the proceeds of the initial sale. The QI's role is to hold the sales proceeds, pursuant to IRS regulations, so that they are not deemed received by the taxpayer. 

Of course, the role of the QI has evolved with some of them enhancing your 1031 exchange experience and outcome in infinite ways - as outlined by @Michael Skoczylas, @Bill Exeter, and @Dave Foster.

@Bill Exeter Great points made in your post and linked blog post. However, among the "qualified" qualified intermediaries is there much difference regarding exchanger fund's security? 

@Robert Biggins

Kudos - and thank you for your service! 

I'll 2nd @Joseph Bridenstine: Check out ADPI. I was a guest on their podcast recently (episode not yet published) and had a great time with Mike Foster.

@Kyle Ritt Lots of great info here from all "the usual suspects" (@Natalie Kolodij, @Dave Foster, @Michael Skoczylas), but the following additional info may be helpful to you.

When executing a 1031 exchange, there is a "same taxpayer" requirement as pointed out - but not every change in ownership between the old and new properties violates the "same taxpayer" rule. As @Ned Carey pointed out, you may not want to own a multi-family unit in your own name, but rather through an entity that would provide liability protection (@Ned Carey Am I understanding you correctly?). Therefore you may prefer to take ownership of your new property through an LLC, which you can do without violating the same taxpayer requirement - provided it is a disregarded entity for tax purposes, which is attainable only if you're the only member (owner) of the LLC.

@John Schutt Great suggestion @Natalie Kolodij and great 1031 insight from @Dave Foster (as always). 

Although the fact pattern for another 1031 would not otherwise be optimal (not to imply that it would otherwise preclude another 1031), the presence of an unsolicited offer makes this a great 1031 opportunity. 

Of course, never let the tax tail wag the investment dog - as pointed out by @Bill F.. Key here is to analyze all potential outcomes, while accounting for all variables. The 1031 approach, though, is not purely a tax play, but more of a real estate financing play. When using a 1031, you are essentially getting the US Treasury to finance your way into bigger deals - interest free! (There may be a balloon payment somewhere down the road, though.)

@Wendy Lavana You've gotten great info already from @Dave Foster and based on the scenario you've outlined -  in which you purchased the 1031 replacement property with the intent to hold it for investment purpose but subsequent events required a change in plan - it should not disqualify your prior 1031. However, neither the IRS nor the courts can read your mind so you want to be positioned to demonstrate that when you initially purchased the property it was not for resale purposes.