Have you considered relocating your real estate investments from one community to another? Perhaps you like to convert an “active” investment into something that’s “passive” or vice versa? If you own investment property and are thinking about selling it then buying another property, you should investigate the 1031 tax-deferred exchange. This is a procedure that allows an owner of investment property to sell then buy another while deferring capital gains tax. Here are a few of the steps you’ll need to make to fulfill the process.
#1) Check with your CPA: There are big potential benefits in performing a 1031 Exchange, there are costs as well. Ask your accountant to provide you with a detailed analysis of cost vs benefit. Assuming you get the thumbs up here, go to step #2.
#2) Select an Exchanger: Technically referred to as an Intermediary. They will eventually hold your funds in trust when moving money from one investment to another so “trust” is the operative word. We can help in locating proven and reputable service providers.
#3) Put your trailing property up for sale: You may or may not choose to condition your sale upon your ability to locate a suitable replacement property. In any event you should disclose to potential buyers that you do intend to complete a 1031 exchange. There will be a few documents for the buyer to acknowledge at close of escrow.
#4) Start looking for replacement properties: The term “like-kind” will pop up in conversation but don’t let that fool you, I have seen investors exchange raw land for residential income property. Questions such as “eligible exchange scenarios” should be cleared up with the Exchanger early in the process. Also, I don’t usually recommend writing offers at this stage.
#5) Accept an offer on your trailing property: Again, the paperwork should clearly state your intent to conduct an exchange. Keep in mind that a strong buyer will help you make a good case in your next purchase because now is the time I might recommend submitting written offers subject to the sale of the trailing property.
#6) Close escrow on your trailing property: Your proceeds will be transferred to the Exchanger’s trust account and held there until just before you close escrow on the replacement property. From this “closing” date you will have 45 days to identify up to three replacement properties and 180 days to close escrow on one or more of those three, identified properties.
#7) Close escrow on your replacement property: There are a lot of logistics to consider during this phase, not the least of which is communication between Title Company & Exchanger. An expert real estate broker will come in handy.
1031 Exchanges are inherently complicated however, I’ve seen investors save many thousands of dollars after jumping through the hoops. There are variations available for this procedure and you’ll have some big decisions to make, start by picking the right team of advisers. Good luck and for some basic tips visit: https://www.relocatingtoreno.com/blog/3-things-you-need-to-know-before-investing-in-residential-real-estate