Real Estate Journal — 1031 Exchange — March 11 - 24, 2016 — 17A
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1031 E xchange
By Patricia Flowers, Investment Property Exchange Services Five reasons to exchange…
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on the investment. However, the original $100,000 invest- ment has grown by 1800% and there is now $1.8 million dollars’ worth of equity tied up in one asset. Since interest rates are still relatively low, what better time than now to unlock some of that equity and exchange, tax deferred, into one or more properties with greater income and long- term appreciation potential? Through an I.R.C. §1031 exchange, this real estate in- vestor can sell his investment property and accomplish a number of tax and investment goals: the investor defers fed-
ave you been feeling it? We have! Com- mercial real estate
investments, one should ana- lyze whether it is now better to hold or to divest the asset. The apartment building is currently owned free and clear of debt. It has been owned for more than 27.5 years so it is fully depreciated and no longer eligible for an- nual depreciation deductions on the investor’s tax return. Reviewing the cash-flow, after property taxes, main- tenance, and insurance, it produces net rental income of about $3,000 per month. $36,000 per year on an invest- ment property worth $1.8M amounts to 2% annual income
eral and state capital gains, depreciation recapture and Healthcare 3.8% taxes. The investor can buy property with improved cash-flow, and if encumbered, with an inter- est deduction to be claimed. If the replacement property is greater in value than the re- linquished apartment build- ing, then depreciation deduc- tions will also be available for the increased basis. Addition- ally, because multiple proper- ties can be acquired through a single exchange, the investor can diversify the real estate portfolio, thereby hedging the investment risk inherent in a
single property. Appreciation, depreciation, cash-flow, diversification and tax deferral are important drivers for doing a §1031 exchange. Investors should examine their real estate holdings and do the 5 point analysis suggested in this article. If repositioning a real estate portfolio is in order, the valuable tax benefits of a 1031 Exchange should be considered. Patricia A. Flowers, CES, is vice president of Invest- ment Property Exchange Serv i ces , Inc . (www. IPX1031.com). n
transactions have been up considerably in the last f ew y e a r s and a large p e r c e n t - age of those hav e b e en s t ruc tured
Patricia Flowers
enjoy retirement without the burdens of management. •Retiring business owners can exchange into residential rental property in an area they would like to eventu- ally live. After acquisition, the property can be used as a rental for several years and then converted to a primary residence or a vacation home. If moving into the property and selling his/her current residence, the owner can ex- clude up to $250,000 of gain ($500,000 if married, filing jointly) under section 121. While exchanges offer great opportunities for business owners to grow their business and keep their money work- ing for them. Exchanges are also good estate preservation vehicles as the deferred gain is forgiven when the owner passes away and heirs receive the asset with a stepped up basis. Currently, the first $5,000,000 of an estate is exempt from estate taxes and the business owner had the opportunity to grow his/her business using pre-tax dollars during his/her lifetime. Margo Mcdonnell, Cer- tified Exchange Special- ist®, is president of 1031 CORP. n continued from page 16A 1031 exchanges help owners grow their business and plan their exit... as 1031 Exchanges. As the largest Intermediary in the country, investment property owners and advisors depend on us to help them realize the benefits of a §1031 Ex- change...here are 5 reasons to Exchange: I f an investor bought an apartment building for $100,000 in 1975 and it is now valued at $1.8M dollars, the property has appreciated significantly and is nowworth eighteen times what it was in 1975. Clearly, this was a great investment. But, like all
As the nation’s largest Qualified Intermediary, clients and their advisors can trust Investment Property Exchange Services, Inc. (IPX1031®) to professionally manage their §1031 tax deferred exchange and to help them build wealth by preserving profits and maximizing their investment dollars. Join the thousands of clients who have depended upon IPX1031® since 1988 to be their first choice for a Qualified Intermediary.
IPX1031® is part of the Fidelity National Financial family of companies.
Marie C. Flavin, Esq. Senior Vice President & Northeast Regional Manager Marie.Flavin@ipx1031.com
877-230-1031 office www.ipx1031.com
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