All Forum Posts by: Sean Ross

@Justin Webb as @Brandon Rush correctly points out, one option is to sell your single family home and use the proceeds to 1031 exchange into better-suited asset(s).  There are lots of potential replacement property options inside of a 1031 -- including multifamily, commercial, land, oil & gas rights, etc. 

This especially makes sense if you find a property (or two properties...or three) that offer better margins than your current one. You effectively get to restructure and spread your equity to make it more efficient and productive. 

Keep in mind the basic 1031 rules:

• Must complete within 180 calendar days of the sale of your relinquished property
  
• Must identify (up to 3) replacement properties within 45 days
• Only complete tax deferral if the final value of the replacement property(ies)equal at least as much as your net sale price for the relinquished property.
• If you trade down in value, the difference is taxable
• Keep the same taxpayer across properties
• You can exchange into (and out of) any state and many US territories
• There are lots of different assets that qualify as valid replacement targets in a 1031, so think broadly

@Wessley Grassi your potential seller is going to run into some complications while trying to do a 1031 exchange with owner carry financing (ultimately that is their concern, but important to know if you're trying to bring them a workable solution).   

@Jack B., I think @Michael Plaks hit the mark perfectly when he asked "Worth it compared to what?"

Nobody in this industry wants to see you pay the IRS a big sum of money, but I think it would be a lot easier to give advice on potentially better options if you could elaborate on what's most important for you. Tax efficiency? Liquidity? Deleveraging? Income? Diversity of investments? Something more aesthetic?

@Jack B. there are lots of alternative and "break glass in case of emergency" 1031 options.  You can also consider opportunity zones, but there's a steep learning curve there. 

Are you down to 12 days left in your 45-day ID period?  Or 12 days left in the entire exchange period?  Very likely the former but want to check. 

Nobody here wants you to pay the taxes either :) 

What factors are most important in your next investment(s)?

@Ross Asher, Dave and Bill have you covered here.  Yes, you can trade out of one property, multiple, or fractional and trade into one property, multiple, or fractional. 

(Great name, by the way)

@Erasmo Alvarenga, thanks for the broad latitude here.  Let me start by saying "You don't want, or need, to know it all."  I'd advise you start with the practical basics rather than the technical ones, then work with someone who does know the technical details and apply them to your specific situation.  

The 1031 Law (speaking practically)
These rules apply to any exchange:

• Must complete within 180 calendar days of the sale of your relinquished property
  
• Must identify up to 3 replacement properties within 45 days
• Only complete tax deferral if the final value of the replacement property is worth at least as much as your net sale price for the relinquished property.
• If you trade down in value, the difference is taxable
• Keep the same taxpayer across properties
• You can exchange into (and out of) any state and many US territories
• There are lots of different assets that qualify as valid replacement targets in a 1031, so think broadly

I'll stop there and see if you have additional questions or want to expand on any point. 

@Greg Powers good question and a common one. A lot of people want a property held for investment (say, STR or VR) in the CO mountains or SoCal or FL or the Northeast, but they really also want to spend personal time there. Can this be done with a 1031?

Yes and no.  There are correct and incorrect ways to do it. 

@Dave Foster hits the main points well.  Let me reiterate and add just a little:

• There are quasi-statutory limits to time spent at an investment property. As Dave Foster mentioned these are not prescriptive. 15 days per year or 10% of days rented.  That said, any time you spend at the property as a "landlord" does not count against your limit.  So if you're painting a wall or planting shrubs or repairing a light fixture, just make sure to keep receipts and a journal.  
• Make sure you get the right loan category.
• The IRS does not send agents around, peering into windows, looking for proof of use.  Instead, an auditor might look at (A) address on your driver's license or other docs, (B) utility bills compared with rental logs, (C) where you get your mail, etc.  
• No need to (and don't) "rent" the property to yourself. You'll just end up paying taxes on the income and it gives you no benefit in the eyes of the IRS. 

Bottom line?

You can spend some time there. It depends on your use of the property when you're not there. And you can spend even more time there if you are acting in a landlord capacity. 

As always, work with your QI to navigate your specific circumstances. 

Did we address your question fully?

@Randy Stark no, your QI can have a home base of operations anywhere in the country and they can help you out.  But maybe ask them about the rules that govern QI work in their respective state.  Some states have more strict vs more lax rules regarding QIs.  Does this help?

@Janet Davis is 100% correct. @Randy Stark you can 1031X from any property held "for investment or use in a trade or business" into any other property held "for investment or use in a trade or business". Does not matter if it is Single Family, Multi Family, residential, commercial, etc. 

The IRS is very liberal with their definition of "like-kind"

Just make sure you keep an eye on the other major 1031 rules:

1. Reinvest into a property of equal/greater value and equity
2. Keep the same taxpayer on both ends of the 1031X
3. Identify within 45 days of your sale
4. Close within 180 days of your sale
5. Use a qualified intermediary

@Tania Lopez, you're in an all-too familiar position right now for people contemplating a 1031.  Residential markets are very seller-friendly.  Commercial markets face a lot of "who knows?" after 2020. 

You can also work with a potential seller on carryback financing or go the hard money route, but I would advise doing a lot of diligence here. 

Keep in mind that you can invest is many different kinds 1031-eligible assets. You may have your heart set on a specific type in a specific location, but it's good to know your options!

Any type of normal real estate is eligible -- raw land, residential buildings, commercial buildings, etc. And you can buy multiple replacement properties or fractional interests.

Then there are lots of alternatives. 

The best known of these is the Delaware Statutory Trust (DST), which is a passive, turn-key investment offered by large real estate company sponsors. You would purchase an undivided interest and legally be a fractional owner of the real estate (This is similar in some respects to a REIT, but differs in important ways).

Again, here are some common examples.

• Commercial real estate
• Residential real estate
• Oil and Gas (Mineral) Interests
• Water and/or Timber Interests
• Farm, Ranch, or raw land
• Solar farms
• Storage Facilities
• passive TIC interests (often in a NNN lease)
• Conservation easements

DM me if you have specific questions about any of these.