(Watch the YouTube video of this episode here)
In this episode, we delve into the specifics of 1031 exchanges in real estate investment. This detailed discussion covers the basics of how a 1031 exchange works, its history, and the crucial timelines and rules investors need to adhere to. We explore various scenarios and discuss important concepts like the identification period, exchange period, boot, upleg, and downleg properties. Our conversation also touches on the nuanced tax implications, the role of qualified intermediaries, and the types of properties that qualify for a 1031 exchange. It’s a lot, but it’s all good to know.
// Timestamps
- 00:00 Welcome
- 01:16 An Introduction to 1031 Exchanges
- 05:47 The Evolution of 1031 Exchanges: From Simultaneous to Delayed
- 11:23 Eligibility and Requirements for 1031 Exchanges
- 20:32 Exploring Depreciation, Capital Gains, and Tax Implications
- 25:31 Navigating Complex 1031 Exchange Strategies
- 31:23 Investing Wisdom and Closing Thoughts
// Key Lessons
- Know your deadlines: For a successful 1031 exchange, remember you have 45 days to identify potential properties and 180 days to close on one. Missing these deadlines can cost you.
- Use an intermediary: Using a qualified intermediary ensures your 1031 exchange stays compliant. This neutral third party holds the proceeds and manages the transaction.
- Consistency is key in ownership: The same taxpayer who sells the property must be the one to acquire the new one. This rule applies to personal names, LLCs, or living trusts.
- Upleg, downleg, and boot—decode the jargon: Upleg refers to the new property, downleg is the old one, and any cash difference in value (boot) will be taxed.
- Plan for contingencies: Identify multiple properties to avoid losing out if your first choice falls through. The more prepared you are, the smoother the process.
- Diverse property options: You can exchange one property for many, many for one, or many for many, as long as the total value aligns with IRS rules.
- It’s only investment properties: Personal residences and vacation homes don't qualify for a 1031 exchange unless they are converted into investment properties first.
- It's all about intent: Ensure your property is held for investment purposes for at least one to two years to demonstrate intent and avoid tax issues.
- Consider the long game: Keep deferring gains until you pass away. When you do, your heirs get a step-up in basis, potentially eliminating deferred taxes.
// Let's build your wealth and improve housing, together.
I'm James Furlo. I live in Oregon, where I help people invest in real estate passively. Over the last 14 years, I've purchased over $4 million in real estate, and I’m excited to give you the opportunity to partner with us and experience the joy of building wealth while improving housing.
Access private investment opportunities, exclusive market updates, principles for passively investing in syndications, and behind-the-scenes insights. https://furlo.com/
// Disclaimer
Please note that investing in private placement securities entails a high degree of risk, including illiquidity of the investment and loss of principal. Please refer to the subscription agreement for a discussion of risk factors.
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