Real Estate Investment Tid-Bits
Asides from real estate, I am also an investor. For those of you that are considering investing in real estate, I want to share some information and strategies to minimize tax liabilities when selling your property and buying another investment property. Hope it's helpful and can be beneficial for your investing endeavors.
The 10-Step Process to Perform a 1031 Exchange
1. Decide to sell and do a 1031 exchange.
First determine if the requirements, costs and time constraints outweigh the just going ahead and paying the tax. Discuss it with you accountant.
2. List your property for sale.
You then list your property for sale, as you ordinarily would. Your agent will have to include language in the listing paperwork regarding your desire to do a 1031 exchange and the buyer’s needed willingness to play along.
3. Begin looking for replacement properties.
Once your property is sold, the 45-day countdown begins. Start looking for deals immediately!
4. Find a qualified intermediary.
Look for someone professional with a good reputation.
5. Negotiate and accept an offer.
When someone agrees to buy your property, you will need to make sure the paperwork clearly states that a 1031 exchange is taking place on your end, and the buyer will need to comply. Although the buyer does not need to do a lot of work, they may need to sign off on certain paperwork, such as assignments or disclosures
6. Close on the sale of your relinquished property.
The title company or attorney will handle the closing, your qualified intermediary will be actively involved in the process, and the funds will transfer to their bank account, not yours.
7. Identify up to three properties within 45 days.
Designate the properties you might pursue. You can identify up to three properties, or more if you close on 95% of them or the total combined value of the identified properties is less than 200% of the sales price of your relinquished property.
8. Sign a contract on the first-choice property.
You will need to get one property under contract and open escrow, making sure the seller knows you are purchasing through a 1031 exchange. You could also go under contract on all three of your identified properties, using contingency clauses to back out on the ones you later decide to no longer pursue.
9. Let your qualified intermediary work with the title company.
You, your agent, and your qualified intermediary will work with the title company or closing attorney to make sure the details are covered. This is a fairly simple process, one that your qualified intermediary should be familiar with.
10. Close on the replacement property.
Finally, the qualified intermediary will wire your money over to the title company or attorney, and the property will close as in a normal transaction, deferring your need to pay the taxes until some point in the future, if ever.