All Forum Posts by: Adam Nishikawa

Congratulations! A lot of moving parts in your exchange!

Well from these 2 choices I like 30-Day Stay because it accurately describes the length of rental term you are discussing. Just my preference!

Hi Evelyn, 

I like to see investors diversifying equity over a mix of different property types. Fortunately, as part of an exchange you will be able to spread the equity in the most efficient manner based on your financing requirements. Please keep in mind the identification rules when searching for replacement properties! Happy Hunting!

3 Property Rule: An investor may identify a maximum of three (3) replacement properties
without regard to their fair market value ("FMV").

200% Rule: An investor may choose to identify more than three (3) replacement properties. If so, the aggregate FMV of all the replacement properties identified cannot exceed 200% of the relinquished property value.

95% Rule: If the 200% rule is exceeded, the investor must purchase no less than 95% of the aggregate FMV of the identified replacement properties

As an intermediary based in San Diego, I still see a lot of people exchanging for California property. Like everything it varies by region, and I still see great investment opportunities. In the cycle of 1031 Exchanges, naturally I see more investors approaching retirement age will choose to move their rentals out of California in search of higher cash flow. On the note of Texas, I just played golf with someone moving from Austin, Texas to Los Angeles, CA. Sample Bias!

Sample Contract Language: "“[Buyer/Seller] hereby acknowledges that it is the intent of the

[Buyer/Seller] to affect a §1031 tax-deferred exchange. The [Buyer’s/ Seller’s] rights and

obligations under this agreement are hereby assigned to Exchange Resources, Inc. for the

purpose of completing a §1031 exchange. [Buyer/Seller] agrees to cooperate, at no additional

cost or liability, with [Buyer/Seller] and Exchange Resources, Inc. in a manner necessary to

complete the exchange.” Hope this helps! It can be even simpler, you won't have any issues.

Here are some examples in case anyone needs more info! 

IRS issued Notice 2020-23 which provided extensions to Section 1031 exchange deadlines. This Notice extends any 45-day or 180-day deadlines that occur between April 1, 2020 and July 14, 2020 to July 15, 2020. Please note, this extension applies to all taxpayers with exchange deadlines within this timeframe. Previously with other extensions involving natural disasters, the IRS has provided for a longer 120-day extension period but relief was provided only to “affected” taxpayers. This relief is broader as it is being universally applied, and the extension date of July 15, 2020 is the same for everyone.

Taxpayers in a reverse exchange will also receive the extension to July 15, 2020 for their 45-day or 180-day deadlines that fall within the extension window, between April 1, 2020 and July 14, 2020.

The following examples are provided for clarity:

1. Taxpayer closed escrow on the relinquished property on February 20, 2020. The 45-day identification deadline was April 5, 2020 and the 180-day deadline to complete the exchange is August 18, 2020.
• Taxpayer would receive an extension to their 45-day identification deadline to July 15, 2020 as April 5, 2020 is within the extension window.
• Taxpayer would not receive an extension to the 180-day deadline as August 18, 2020 falls outside the extension window.
2. Taxpayer closed escrow on the relinquished property on December 18, 2019. The 45-day identification deadline was February 1, 2020 and the 180-day deadline to complete the exchange is June 15, 2020.
• Taxpayer would not receive an extension to their 45-day identification deadline to July 15, 2020 as February 1, 2020 falls outside the extension window.
• Taxpayer would receive an extension to the 180-day deadline to complete the exchange to July 15, 2020 as June 15, 2020 falls within the extension window.

We always recommend involving your tax professional in your exchange, this is especially true in light of this most recent information provided from the IRS. 

Just a side note: take into consideration each part of your potential tax liability including the 3.8% Medicare Surcharge Tax. You may or may not qualify, but its good to verify. The Net Investment Income Tax is imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts. 

 My saying is defer, defer, defer,... die and your heirs will receive a step up in basis. 

Hi Alex, as an option you consider a Revers e Exchange if you wanted to incorporate deferred taxes into your new investment. Brief summary below, reach out with any questions! It would permit you to acquire their replacement property before the relinquished property is sold.

Under no circumstance may an investor be on title to both properties simultaneously. 

Option A: Park Replacement Property — Exchange Last
Option B: Park Relinquished Property — Exchange First
This scenario more commonly occurs when financing is obtained for the acquisition of the replacement property. 

Issues to Consider
Any funds brought in for the acquisition of the replacement property by the investor may be reimbursed to the investor from the proceeds of the relinquished property and are not subject to capital gains tax. Any remaining proceeds can be utilized to reduce any debt previously incurred for the acquisition of the replacement property. 

DM for more info! Best of luck with all of your options. 

PSA on 1031 Exchange Extensions:

IRS issued Notice 2020-23 which provided extensions to Section 1031 exchange deadlines. This Notice extends any 45-day or 180-day deadlines that occur between April 1, 2020 and July 14, 2020 to July 15, 2020. Please note, this extension applies to all taxpayers with exchange deadlines within this time frame. Previously with other extensions involving natural disasters, the IRS has provided for a longer 120-day extension period but relief was provided only to “affected” taxpayers. This relief is broader as it is being universally applied, and the extension date of July 15, 2020 is the same for everyone.

Taxpayers in a reverse exchange will also receive the extension to July 15, 2020 for their 45-day or 180-day deadlines that fall within the extension window, between April 1, 2020 and July 14, 2020.

The following examples are provided for clarity:

1. Taxpayer closed escrow on the relinquished property on February 20, 2020. The 45-day identification deadline was April 5, 2020 and the 180-day deadline to complete the exchange is August 18, 2020.
• Taxpayer would receive an extension to their 45-day identification deadline to July 15, 2020 as April 5, 2020 is within the extension window.
• Taxpayer would not receive an extension to the 180-day deadline as August 18, 2020 falls outside the extension window.
2. Taxpayer closed escrow on the relinquished property on December 18, 2019. The 45-day identification deadline was February 1, 2020 and the 180-day deadline to complete the exchange is June 15, 2020.
• Taxpayer would not receive an extension to their 45-day identification deadline to July 15, 2020 as February 1, 2020 falls outside the extension window.
• Taxpayer would receive an extension to the 180-day deadline to complete the exchange to July 15, 2020 as June 15, 2020 falls within the extension window.

We always recommend involving your tax professional in your exchange, this is especially true in light of this most recent information provided from the IRS. 

If you are a 1031 Investor now may be a great time to use the rare extensions as highlighted below. Just food for thought!

IRS issued Notice 2020-23 which provided extensions to Section 1031 exchange deadlines. This Notice extends any 45-day or 180-day deadlines that occur between April 1, 2020 and July 14, 2020 to July 15, 2020. Please note, this extension applies to all taxpayers with exchange deadlines within this time frame. Previously with other extensions involving natural disasters, the IRS has provided for a longer 120-day extension period but relief was provided only to “affected” taxpayers. This relief is broader as it is being universally applied, and the extension date of July 15, 2020 is the same for everyone.

Taxpayers in a reverse exchange will also receive the extension to July 15, 2020 for their 45-day or 180-day deadlines that fall within the extension window, between April 1, 2020 and July 14, 2020.

The following examples are provided for clarity:

1. Taxpayer closed escrow on the relinquished property on February 20, 2020. The 45-day identification deadline was April 5, 2020 and the 180-day deadline to complete the exchange is August 18, 2020.
• Taxpayer would receive an extension to their 45-day identification deadline to July 15, 2020 as April 5, 2020 is within the extension window.
• Taxpayer would not receive an extension to the 180-day deadline as August 18, 2020 falls outside the extension window.
2. Taxpayer closed escrow on the relinquished property on December 18, 2019. The 45-day identification deadline was February 1, 2020 and the 180-day deadline to complete the exchange is June 15, 2020.
• Taxpayer would not receive an extension to their 45-day identification deadline to July 15, 2020 as February 1, 2020 falls outside the extension window.
• Taxpayer would receive an extension to the 180-day deadline to complete the exchange to July 15, 2020 as June 15, 2020 falls within the extension window.

-Adam N.