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to do a 1031 you have to buy the next property and have the same loan amount on it as your old one. "like kind" or upgrade. so if i do a 1031, and my relinquished property had a 400,000 loan on it, I will always have to keep a 400,000 loan or higher on the next proerties. so my monthly payments will ALWAYS be the same, no matter how many times i do a 1031.

or is it...i have a 400,000 loan, in 5 years i pay it down to 300,000, and when im selling it its at 300,000 i have to have a 300,000 loan on the next property, then hold it and pay it down to 100,000 for example, then the next house i exchnage has to have a 100,000 loan amount? or is it based on the loan amount i took out at the time i bought it on my first one?

is it possible to build equity to where i have no loan on a propertyu with a 1031, or is a 1031 only for upgrading properties (keeping the same amount of loan on it, so my paymetns will be the same) but because its upgrading, it can produce more cashflow?

2007-07-22 18:47:32 · 5 answers · asked by beach_babe971 2 in Business & Finance Taxes United States

maybe a 1031 isnt for me? i have 5 properties. i want to buy and hold for 7-10 years then keep all the campital gains. and never buy anouther property again. so why would i need a 1031?

2007-07-22 18:53:55 · update #1

5 answers

There are alternative options to a direct 1031 exchange where you will still have debt on the books, but you can reduce the risk of mortgage payments and increase your cash flow.

The primary transaction is called a 1031- TIC Exchange where you sell your property and exchange the equity and debt into a fractional ownership of a larger property. You do this through a 1031 TIC syndicator. The TIC syndicator buys high cash flow properties with long term leases. Essentially what they do is they collect rent from the tenants, use that to pay down the debt, and send the excess rent to you the investor. Cash flow yields vary, but 6.5-7.0% is about right.

Be careful about what syndicators you work with as they vary widely. Focus on the property first (a syndicator is only as good as his product). Look for buildings in stable, growing markets, with long term leases from high credit quality tenants.

I've done a fair amount of research on this topic and posted my sources below, but quick index of the sources:
-the 1031 tic exchange described above and the slightly more esoteric 1031 to a REIT: http://www.nestegginvesting.com
-how to evaluate a tic sponsor: http://www.1031-tic-exchange.net
-Performing a 1031-121 on your primary residence: http://www.1031-tic-exchange.info/
-1031-tic listings: http://www.1031research.com/

2007-07-23 13:14:07 · answer #1 · answered by Anonymous · 0 0

The short answer is: if you plan to hold THESE properties for 7-10 years and then sell them, you will not be exchanging them in the interim and you don't need the headache of understanding sec 1031 like-kind exchanges.

On the other hand, if you think a 1031 exchange will improve your cash flow it will do so only if you put more cash into the exchange. I don't think that fits your plan.

L-K exchanges of real estate make sense when the main reason is a better opportunity in a different property.

Your confusion stems from this: You are looking at loan amount only. 1031 deferred gains are NOT based on realized gain: net sale price minus Basis (usually, but not always, cost) plus debt relief (loans that go away in the deal.) The deferred gain is based on "recognized gain". That is, if the cost of the replacement property plus new debt minus the realized gain is not less than zero, AND you receive no "boot"(cash or unlike property) you have no "recognized" gain and you have deferred the gain.

Deferral ( postponement) of the gain is achieved by reducing the basis of the new peoperty by the amount of gain to be deferred. Thus, it is not just loans or prices that are involved but whether boot is received that determines taxable gain.

2007-07-26 12:06:03 · answer #2 · answered by Hank Roitman, EA 4 · 0 0

A 1031 exchange only DEFERS the eventual tax bite. There's NO way to avoid it, short of dying. (If you die, your heirs get the stepped up basis for the property and will only be taxed on any gain from that point upwards.)

The amount of any loans involved have no impact on a 1031 exchange. Only the value of the business property exchanged matters.

2007-07-23 00:36:19 · answer #3 · answered by Bostonian In MO 7 · 1 0

Let's suppose you have a $1,000,000 property with a $600,000 mortgage. You swap it for a package of two similar properties, each worth $500,000, but A has a $400,000 mortgage and B has a $200,000 mortgage.

You sell the property with a $400,000 mortgage for $500,000. Your basis in the original property was $200,000, so your basis in each of the new properties is $100,000. That gives you $400,000, which pays off the mortgage entirely, and your net of $100,000 is equal to your basis, so you owe no taxes.

So now, your monthly payments apply towards a $200,000 mortgage instead of a $600,000 mortgage, and if you keep paying the same amount, more than 2/3 of your payments go towards reducing the amount you owe.

The whole point of a 1031 is to exchange property you don't want, for property you do want, without having to realize a profit and pay the taxes on it.

2007-07-22 18:59:05 · answer #4 · answered by Anonymous · 0 2

the seller is finding for tax advantages. perchance he could evaluate taking a 2nd loan so as that he can placed off his income to a destiny date. A 1031 replace, additionally widespread as a Like style replace, is a manner of structuring a sale of specific forms of components so as that the seller’s income or benefit isn't at the instant taxed. as a replace, the valuables this is bought is replaced with yet another “like style” components. If the transaction is properly based, the seller’s income or benefit is deferred to a destiny date. area 1031 of the interior gross sales Code, 26 united statesC. § 1031, can provide: "No benefit or loss would be known on the replace of components held for efficient use in a commerce or corporation or for investment if such components is exchanged totally for components of like style this is to be held the two for efficient use in a commerce or corporation or for investment."

2016-10-22 09:45:36 · answer #5 · answered by ? 4 · 0 0

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