1031 Exchanges are for Investment properties (help you shelter your income from the sale of an investment property by rolling it into another investment property)
Choose a good 1031 Company
I cannot emphasize how critically important this is. EDUCATION IS EVERYTHING when it comes to 1031 exchanges. I hired a company that did a presentation at a real estate function and was more than disappointed. While I was doing this for myself personally for the first time. I always knew in the back of my mind the two timelines are 45 days and 180 days. It is imperative you know WHAT you must achieve within those two timelines. Albeit I came from an accounting background (Bachelors degree) I had a perception about what was allowable when and NO ONE CLARIFIED IT, until I called 22 days into my initial 45 day period.
What 45 day period you might ask? Subsequent to the sale of your old property you have 45 days to “identify a replacement property (can have up to 3). It was my assumption that if I didn’t eventually close on one of the “identified properties” I selected during the 45 day initial period, I could pick a “like kind property” to close on. That is NOT THE CASE. The 1031 property you close on must be chosen during the 45 days after you close on your previously owned property. That said you now have 180 days to close on it. That may seem superfluous but the home I am buying is under construction and we did not meet the targeted initial close date. That meant I incurred “lock fees”, to extend the interest rate I had locked in to acquire my new construction home.
So because I had to find this home in the 45 day period, I was literally looking at properties at 9 pm at night rushing to meet the deadline. I did get my home under contract but due to demanding work schedules it was not an ideal situation. It is imperative the timelines and what must be achieved at each milestone is incumbent upon your 1031 exchange company to communicate that information to you.
What price must the new property be acquired for in order to shelter your income from your old residence entirely? I was told that the sales price of my old home minus closing costs (commission and escrow fees, etc) was the amount I must pay for the new acquisition. That said the total proceeds amount from sale of my prior residence was wired to the title company on the close date of my new investment property. That meant the balance due on the closing disclosure had to be at least or greater than the proceeds on my former investment property.
180 day deadline to close on new property. I found this stipulation of the 1031 exchange extremely easy to meet albeit my home was new construction and the closing was delayed twice by the builder.
In short order if you enjoy investing in real estate because of appreciation, tax benefits, and or just because you prefer investments, you can see, feel and touch, then the 1031 exchange is a great vehicle to shelter your income from taxes.
Research the 1031 exchange firm thoroughly. I did not have the time or bandwidth to do so thinking they were doing basic tasks and were all likely created equally. This is NOT THE CASE.
I did however succeed in spite of my original lack of research because I met all timelines and was able to save myself a boat load of taxes by using this method to roll over my income from one investment property to another. You cannot use a 1031 exchange money to buy a personal residence. That said I cannot live in my new construction home. Instead the IRS requires that I rent it out for the first two years.
If you are looking for someone to help you navigate a 1031 exchange I can help. I have been a landlord for more than 15 years and am fully versed in all aspects of not only investing, but can share the pros and cons I’ve experienced over the years of being a landlord.