I need most things dumbed down. This is my truth, maybe not yours, but my attention span is
really like 10 minutes MAX. If you want to communicate to me, I need short quick ideas, that
make sense, and explained with simple words. Real Estate terms and deals by nature already
cause stress to most people because of the legal verbiage! So let’s simply talk about a 1031
exchange.
January is looming for investors who have to do their taxes. One thing that is simple to understand is that no one wants to pay more than necessary. I hope that if you are an investor, I can help you simply choose a 1031 Exchange with this down to earth and super simple explanation.
First off, I am not a financial advisor or qualified to give legal advice! I have real life experience
with investors using these, even some first time users! There are a LOT more complicated ways
to view and explain this, but this is what you will experience and it is so simple. Saving money is the purpose of a 1031 Exchange. Basically, if you sell a property that is not your primary residence, you owe taxes on the “net” proceeds from the sale.
If you are selling any property you didn’t occupy, or haven’t occupied for 2 of the last 5 years
and will be “reinvesting” the proceeds into another home purchase, you should consider doing a
1031 Exchange.
Here is the basic premise of this program. I need to disclose that if you do not use a realtor, I
can not promise this will be your experience.
BEFORE the closing you let your realtor or closing attorney know you plan to reinvest the funds
and want to use this process. Some attorney’s do not handle them, so make sure you choose
an attorney who can facilitate it. When you sell the property, you note in the special stipulations
that you will be executing a 1031 exchange. You can not do it yourself, you have to have a
qualified intermediary.
At the closing, the attorney will have you sign a few docs and charge you to handle it. This fee
will run in the ballpark of $700-$1500. You will not receive any of the proceeds at the closing,
they will be held in a trust account with the qualified intermediary, or QI. This is where people
get all squirrelly. It is hard to trust someone to “hold” your money.
Next step is that you identify a property to buy with your funds. You have 45 days to choose a
new property to invest in. In the offer, you disclose that you are executing a 1031 Exchange to
purchase the property. In an ideal world, you would use the same closing attorney as before, but
it is not necessary. YOU do have to still work with your QI to close this new purchase.
You will close on the new property with in 180, and thus completes the process. Now you don’t
owe money in taxes, you have new write offs!
Also, if you don’t find a property that you want to invest in, you get your money back, along with
the responsibilities associated with the taxes owed.
I hope this helps anyone on the fence lean towards trying it out for themselves! I am happy to
recommend local attorney’s who handle this if you want a more “complex”
explanation!
