Wouldn’t you rather go to Tahiti? Are you a landlord with rental property whose value has significantly appreciated? Are you ready to cash in those profits and take that trip to Tahiti?
Before selling your property, check with your accountant who
will tell you that you will be paying $60,000 in Capital
Gains Tax to Uncle Sam. Your accountant will also tell you
that adding another $20,000 to your income by that sale is
called recaptured depreciation. This will bump you into the
next tax bracket and doom you next April 15th into sending
the IRS a check for maybe another $7,000.
Are you still ready to sell that property?
It looks like that trip to Tahiti is going to be sometime in
the far future…
But wait! You decide to check with your realtor and then
find out about a 1031 exchange to defer your Capital Gains.
Your realtor tells you if you buy another like-kind rental
property of equal or greater value, you won’t get hit with
the gains tax on the sale. That is all fine and good, but
it does not really get you out of the headaches associated
with collecting rent, keeping your unit occupied, finding
clean/classy tenants that won’t trash the place, nor does it
keep you from getting that 2am call to fix an overflowing
toilet. To top this off, now you have to pay more in
property taxes and must charge higher rent.
Hmm…maybe this idea is not the ticket to that South Pacific
This is the dilemma I heard from my financial clients again
and again. They were frustrated and felt trapped in their
current situation. So what is a frustrated income property
owner to do? After a lot of research and roadblocks, I found
the perfect solution that has changed the lives of my
clients and took away stress to bring enjoyment of life.
For anyone who is tired of being a landlord and who owns a
rental/commercial property that has gone up a lot in value,
A 1031 exchange into a Tenant In Common Property may be your
There are very specific rules to follow set by the IRS, and
the entire detailed process is the subject for a future
article, but here’s the gist:
1-Sell your current income
2-Before the close of escrow, you declare via a Qualified
Intermediary (also called an Accommodator, who is a
qualified third party) that you intend to do a 1031 exchange
into a Tenant in Common Property;
3-Work with a reputable
company to identify a property that you would like to
purchase an interest in;
4-At the close of escrow, your
proceeds are transferred by the Accommodator to purchase
your proportionate share of a larger „A“ rated commercial
5-You may choose a business center, a medical
office building, or similar high-end property; and lastly,
6-You get a deeded interest in this property, so you can
keep it, resell it, pass it to your heirs, or even gift it
to charity upon your death.
The way that this works is all the new fractional owners, or
„Tenants in Common“ hire an ace Management Company to handle
all the property management tasks. The company finds and
keeps high quality tenants, does the maintenance and
upgrades, pays the property taxes, and handles all the day
to day crisis that arise. Probably the three most important
factors in this entire process are:
1-Your choice of company
that offers the properties for sale;
3-the management company.
Make sure each of the three parts is a top notch with proven
track records. Anything less could spell disaster.
When this 1031 option is done properly, your benefits will
Deferral of all Capital Gains,
A monthly contractual income (usually based on 6-7% return
Building depreciation for tax savings,
Unlimited property appreciation potential, and
No more headaches of property management.
Good-bye Tenants, Trash and Toilets!
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