Everything You Need To Know About A 1031 Exchange

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1031 exchange do's and dont's

Everything You Need To Know About A 1031 Exchange

1031 Exchange – What is it and How Does it Work?

When you sell a real estate investment, you make capital gains, or at least that’s the hope. Those profits come at a price, though. You’ll owe taxes on the income, which depletes the money you earn.

There’s a way around it.

The 1031 exchange or like-kind exchange is a way around the tax issue. Not everyone qualifies and you must follow the instructions to the letter to make it work.

Here’s what you must know.

What is the 1031 Exchange?

You can do the 1031 exchange in one of two ways. A simultaneous 1031 exchange occurs when you sell a property and buy another on the same day. You transfer the profits from one property to another, never taking possession of the cash, which would trigger the tax liability.

A deferred 1031 exchange occurs when you sell a property, but don’t buy another property right away. To qualify, you must:

  • Within 45 days find another property to invest in and identify your intention by signing a contract and/or notifying an exchange facilitator of your intention. Telling your attorney or real estate agent doesn’t count.
  • Within 180 days of selling the first property or the tax due date including extensions for the tax year, whichever is first, complete the purchase of the second property.
  • Find a property that’s similar (or the same) as the property you sold.

Who Qualifies?

Real estate investors may qualify for the 1031 like-kind exchange. This includes individuals, partnerships, corporations, and LLCs. Anyone who operates as a business may qualify, but only properties you invest in, not live in, count.

What Properties Count?

The properties you ‘exchange’ must be similar, but not identical. For example, both properties must be real estate. You can’t exchange real estate property for a real estate trust, for example. It must be two properties.

As far as how alike they must be, differs. For example, you may sell land with a rental house for vacant land and it would count. As long as both properties are used in a business fashion, not for personal use, they may count.

Additionally, both properties must be within the United States. For example, you can’t sell one property here and buy another abroad and use the 1031 exchange.

1031 Exchange Helps Investors Avoid Capital Gains Taxes

If you’re an investor looking to keep your investments going, the 1031 exchange can help lower your tax liability. It takes careful planning and adhering to strict timelines to make it work. Using an exchange facilitator can help ensure you meet all deadlines so you can take advantage of the 1031 exchange.

Work with your tax advisor too, as this affects your taxes and what you will (or will not) owe. While you’ll pay taxes eventually on the capital gains you earn on real estate, it may not have to be right away if you continue investing after selling a property.

Jose Guevara
Lead Agent
424-209-7899
support@hometuity.com

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Top 5 Improvements That Increase Home Value

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Top 5 Improvements that Increase Home Value

Did you know that not every home improvement gives you a dollar-for-dollar return or even a ‘good’ return on your investment?

Knowing which home improvements matter and will give you a good return on your investment is important, especially if you’re thinking about selling your home soon.

Minor Kitchen Renovations

Renovating your kitchen doesn’t mean demolishing the entire kitchen rendering it useless for a week. Instead, the best return on your investment results from minor, yet helpful kitchen renovations. Many consider them giving your kitchen a ‘facelift’, such as:

  • A fresh coat of paint
  • Upgraded appliances
  • Refinishing the floors

These simple changes may provide as much as a 100% return on your investment.

Minor Bathroom Renovations

Minor bathroom renovations are just as profitable as minor kitchen renovations. In the bathroom, buyers are concerned about square footage, so don’t think you have to add in a soaker tub – if anything, opt for the walk-in shower and updated cabinets and countertops.

If your bathroom has any of the following issues, repair/replace them and you’ll see around a 75% ROI:

  • Replace cracked tiles
  • Update light fixtures
  • Update faucets
  • Replace/repair countertops
  • Refinish the floors

Update the Curb Appeal

It may not seem like much, but your curb appeal can increase your home’s value incredibly. Many sellers see well over a 100% return on their investment. Curb appeal is important because it’s the first thing buyers see.

A well-kept exterior often means the interior is in good condition too. Poor curb appeal turns buyers away. To update your curb appeal, all it takes is:

  • Manicuring the lawn and landscaping
  • Replacing dead/ugly bushes or trees
  • Adding a few flowers
  • Cleaning the siding/painting it if necessary

Paint your House

It’s amazing what a fresh coat of paint can do to a house. This is especially important if you painted in colors that may be more of a personal preference than well-liked.

Stick with neutral colors and paint the entire level. A neutral white or tan color will open things up and make your house look more welcoming to buyers. Painting doesn’t cost much but you’ll see well over a 100% return on your investment.

Repair/Replace Flooring

Flooring is a focal point in the house. If your flooring isn’t ‘pretty’ or needs repairs, it could take away from the home’s value.

If you can repair it, go for it. Otherwise, consider an affordable and neutral flooring option that opens things up and really makes the house feel ‘new.’ It’s amazing what a new floor can do. Like paint, flooring can provide a return that’s well over 100%.

Choose your Home Improvements Wisely

While you should fix up what you want on your house, if you’re doing it for value, focus on the home improvements that provide a decent return on your investment. Why throw money out the window when it won’t affect buyers? If you’re moving within the next few years, these are great improvements to keep in mind to make the most of your investment.

 

Jose Guevara
Lead Agent
424-209-7899
support@hometuity.com

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Six Homeowner Hacks When Selling

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Six Homeowner Hacks When Selling

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