All Forum Posts by: Kyle Kadish

@Joseph Key

As usual, @Dave Foster nails it. Remember the idea of 'equal or up' in an exchange. You are trying to match dollar for dollar, not property for property. Buy the lot, and have another $130k to invest elsewhere.

@Jason Maestas - Plenty of great comments so far.  If 1031 is the route you are taking, always start looking for properties to purchase before you even list what you are selling.  The 45-day identification period does come quickly.

Worst case scenario is you pay ~$1,000 to a QI  and do not complete an exchange.

Backstops exist to use all of the proceeds as well.  Some clients explore Delaware Statutory Trusts as replacement property for some or all of the proceeds from the sale (or even a Plan B in the identification process).  

Good luck with the process.

@Jason Foxx

Question 2: 1031 is a federal law, however a couple of states will tax the gains if you complete the exchange through purchase in another state. For example, a seller owns in Pennslyvania, and exchanges for a property in Florida; they would owe gains tax in PA.

Question 3: replacement property must be identified by day 45, and possession taken by day 180 (sale date being day 0).

@AS Chow Any proceeds from building C would be taxed if not used for an exchange. Since you own property b, an exchange into b is not allowed.

@Natalie Kolodij mentioned an installment sale.  This does not reduce capital gains taxes, but certainly defers them.  There are two ways to think of the installment sale:

1 -  buyer purchases over set period of time, i.e. 5 years, or

2 - seller receives payment over set period of time.

Using option 2, the seller transfers property to a third party in exchange for promissory note.  Third party sells property to buyer for full asking price.  Seller does not have constructive receipt (no capital gains tax liability) until third party pays them the principal.  You might have heard this strategy marketed as a Deferred Sales Trust.

Third party can sit in cash or invest per guidelines established by the seller.

This does not provide the step-up opportunity that a 1031 exchange has, but there are ways to offset the future tax liability.  Additionally, current tax code allows for deferring taxes for decades.

It provides the seller an exit, and allows you the entry you were looking for. 

@Aaron Millis 121 and 1031 are often combined when selling a multifamily with one unit owner occupied.

@John Morgan the tax liabilities are deferred, but when passed to heirs, taxes become moot. The heirs recieve the property at its current value, and not your basis. Example: You purchase for 100k, sell @ 300k through an exchange. Upon death property is worth 400k. Your children have a basis of 400k, not your 100k. If they sell immediately, they owe nothing on your basis. If they hold onto property then sell at 500k, they have taxes on 100k gain (400k to 500k).

@Joseph Bryant re:1031 vs OZ, the investment into the OZ only needs to be the gain. With a 1031, you are reqyired to place every dollar from the sale. Finally, the investment in the OZ does not need to be real property, but could be a company that generates x% of revenue in OZ. Just make sure the location is recognized by the IRS as a Qualified Opportunity Zone.

@Joseph Bryant As I have suggested with cluents and others, first remove the benefits of the tax policy. Would you still make the investment? If the answer is yes, then Opportunity Zones both enhance the potential for your own balance sheet, and allow you to redeploy capital from other investments. The two greatest unknowns that concern me are the duration of the investment for tax free gains, and future legislative changes that can dramatically alter the policy.

@Stone Jin Great question, on a topic not always discussed. As the seller, you should be fine with related party issues, as long as the sales proceeds go to QI. The concerns come into play if your parents are buying as part of an exchange,