All Forum Posts by: Bill Exeter

Hi @Melina Victoria W., 

The sale of your primary residence falls under Section 121 of the Tax Code.  You would received $250,000 in tax free gain if you are single or $500,000 in tax free gain if you are married.  However, if your gain is over the $250,000/$500,000 exclusion, you can rent your home out long enough to demonstrate that you had the intent to convert to rental property, when you sell the property (as long as you sell within 3 years of converting it to rental property) you will still receive the $250,000/$500,000 tax free gain and the rest could be deferred through a 1031 Exchange.  

There is no specific holding period required.  You just have to demonstrate that you had the intent to hold for rental, investment or business use.  Advisors generally recommend one year, but that is for a plain vanilla 1031 Exchange.  In this case, you once lived in the property so I would suggest that you rent it longer than one year to be safer. 

Hi @Felipe Ocampo, 

You are most welcome.  Yes, Exeter administers 1031 Exchanges.  We charge $899.00 for one sale and one purchase.  There are no additional fees. 

Hi @Felipe Ocampo, 

The 1031 Exchange process is not really that complicated, but there are timing considerations that make it feel complicated.  A good Qualified Intermediary can walk you through the entire process, including the timing requirements for identifying your replacement property and completing your 1031 Exchange.  

The tax amount looks a little low.  Federal capital gain tax is at 15%, depreciation recapture tax is at 25%, plus state taxes.  

You have 45 calendar days after the close of your relinquished property to identify your potential replacement properties to your Qualified Intermediary and you have an additional 135 calendar days after your 45 days to complete your 1031 Exchange for a total of 180 calendar days.  

1031 Exchange fees generally range from $750.00 to $1,200.00.  These generally cover the first relinquished property and the first replacement property.  I would compare the amount of actual taxes that you would be paying/saving and then decide if the process is worth it for you. 

Successful 1031 Exchanges are all about planning ahead.  Laying out your goals and objectives.  Getting everything ready.  

Hi @Weng L., 

I think one year is very conservative.  We generally recommend 6 months, and we are pretty conservative.  The key is to get enough time between the refinance and the sale/1031 Exchange so that it does not appear that you are cashing out/not reinvesting those funds.  

Hi @Weng L., 

It could. It is never recommended to take out a new loan or draw upon a line of credit or HELOC just before the sale and 1031 Exchange. The IRS could argue that you did not intend to reinvest that equity since you pulled it out just before the closing. They do not generally request HELOC statements. It would most likely occur if they see something that tips them off.

You are still required to identify and purchase one or more replacement properties of equal or greater value.  The amount of outstanding debt vs. equity only changes the way that you finance the new acquisition and does not change the amount of what you must acquire.  

You are correct.  The deferred gain is the sale price less closing costs less adjusted cost basis.  

Hi @Lisa Hernandez, 

You need to look for a trust company that has expertise and experience not only in the administration of Self-Directed IRAs (and checkbook control), but one that also has extensive experience in the administration of real estate.  As you know, "stuff" happens and you need a trust company that can help you navigate the "stuff" when it does happen. 

Hi @Ian Green, 

The costs for a smaller Self-Directed IRA can be a challenge, but if you contribute $6,000 for 2020 and then another $6,000 for 2021 you will have doubled your cash position. The cost issue really only affects your return the first couple of years. It becomes less of an issue as your account grows.

The key is to focus on what investments you want to make, and then choose an IRA Custodian that makes sense for what your goals and objectives are. You should be concerned with fees, but don't let the fee issue consume the discussion. You want the right IRA Custodian to help you build your SDIRA value.

Many IRA Custodians understand SDIRAs and trust company operations, but you need to make sure they have expertise in the asset class that you want to invest in. Expertise is critical to the long-term success of your SDIRAs.

Hi @Hector Test, 

@Bob Norton is a licensed CPA and can certainly help you. 

Hi @Jason Wray and @Jesse Stemle, 

The key to a successful 1031 Exchange is that the property you sell and the property that you buy must be held for rental, investment or business use.  Property acquired with the intent to rehab/fix and then sell (flip) is considered property acquire and held for sale and not held for investment, so it would not qualify for 1031 Exchange treatment.  It all boils down to what you can demonstrate/support should you be audited.  If your intent was to buy, rehab and hold for rental, then you would qualify for 1031 Exchange treatment.  You would have to demonstrate your intent should you be audited.  The key is intent.  

Jesse, 

You are less than 8 months away from tax free income.  Tax free income is hard to come by.  I would give serious thought to holding and living there as your primary residence until you cross the two year mark when you will qualify for $250,000 in tax free gain as your primary residence.  

Hi @Hector Test, 

Your costs would be $100,000 and your profit would be $50,000.  This would be taxed as ordinary income since it sounds like you are a builder/developer.  

You might be able to qualify for long-term capital gain taxes if you are not really intending to be a builder/developer and you hold the property for more than one year.  However, it sounds like you intend to repeat the process so you would be a builder/developer/dealer. 

The same applies for 1031 Exchange treatment.  You must have the intent to buy and hold both your relinquished property and your replacement property for rental, investment or business use.  Developer, builders, dealers, etc., hold property for sale in their real estate business and do not qualify for 1031 Exchange treatment.  You could qualify if you build and hold for rental vs. hold for sale.