Nearly out of ID Time & Options - Options?

Question

Well, I guess I'm not surprised since this is my first one and the market is HOT.

My 45 day period expires tomorrow and I doubt I'll ID a suitable replacement on the open market.  Options anybody?

@Dave Foster - others?

Thanks,

Keith

Keith Thompson · Answer

@Dave Foster & @Bill Exeter - Excellent thoughts from both of you. There is a property that is well overpriced and on the market now.  I think the folks that bought it must have watched a House Flipping show and took a plunge INTO THE DEEP END.  The house needs lots of work and the work they've done needs to be torn out.  I'll identify that one because I'd actually like to get it and it will take time for them to realize the market resistance at current price.

I had not heard of the Opportunity Zone Fund and just looked it up - it's an interesting avenue. I did sign up for an account yesterday with Realized 1031 which offers DST opportunities and will look that information over as well.

Thanks to you both for your input.  I'll post what my course of action is and continue watching for other input, but I think you have hit the nail on the head with the information presented.

Thanks again -

Keith

Dave Foster · Answer

@Keith Thompson, Your QI may not know this trick.  But if you identify any property that keeps your exchange open for the full 180 days.  Which means that your exchange will die in 2022.  Your accountant reports the receipt of the money in 2022 and you don't pay taxes until April of 2023.

And if you identify a property that is legitimately for sale but over priced you have the chance to become a minor god of negotiation by wearing them down for 4.5 months.

Other than that DSTs, and OZs.

Leslie Pappas · Answer

Hi @Keith Thompson, agree with what @Bill Exeter posted, DSTs can provide a quick ID and close. We have assisted hundreds of investors in 1031 Exchange, and developing their own "hands-off" diversified portfolio of institutional real estate.

Can read more on my blog here on BP

https://www.biggerpockets.com/...

Bill Exeter · Answer

Hi @Keith Thompson,

You can look at Delaware Statutory Trusts (DSTs).  You would have to choose and identify a specific DST before your deadline tomorrow.  If you miss the deadline, you could use the Qualified Opportunity Zone Funds as a back-up strategy.

The 1031 Exchange works like an installment sale as Dave mentioned.  You could identify a replacement property and then if you are not able to acquire it you are not permitted access to the funds until the 181st day, which would land next tax year.  Your gain would be taxable in 2022 under Section 453 (installment sale code) or you would elect to take the tax hit in 2021. The technical part for your tax advisor is that Section 1031 of the Internal Revenue Code works in conjunction with Section 453 of the IRC.

Keep in mind that the current version of the House Ways and Means Mark-up includes an increase in capital gain taxes from 20% to 25% depending upon your tax bracket.

Nearly out of ID Time & Options - Options?

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