All Forum Posts by: Joe Vesey

Is it possible to sell rental using 1031 exchange and buy new property for personal residence ,I had lived in previous property for 2 years and then rented it out for last 10 yrs.

Can an investor sell for instance 8 single family homes and two triple plexes, and use that money to buy into a syndication that is being formed to purchase a 120 unit apartment complex?

1. Is there a window in which the SFH''s and The Triplexes must be sold in. Such as one year, or 90 days, or in one single transaction?

2. What is the window of time for the replacement sale to close, and get the tax break.

3. Can the seller take some personal money out of the deal such as $300,000 out of 2 million, pay whatever tax on the 300,000, and then shelter the rest under this program with a repurchase? Or must All of the Sales profits be steered into a new purchase?

4. Is there a minimum hold Time for the properties to be sold, or can they be purchased the day before the sale and included in the tax shelter?

5. Are the fees to make this shelter happen comparable to the fees for a 1031 exchange, or is there some shark in there that will jump up and bite you when you do it?

6. Is there some type of insurance on the cash proceeds from the sale of the properties, until it is used to purchase the tax shelter stuff? To prevent the holder from running off to Timbuktu with all of the money?

7. Can the seller sell single family homes, and small multifamily fourplex and less, and use that money to buy into a syndication As either a GP or an LP, or neither?

8. If the seller fails to purchase into another investment, is there a penalty from the government in addition to what it would have cost had the seller not tried to set this program up and then either failed or pulled out of it?

9. Can you give us a quick breakdown on how this service is priced, or are they individually bid depending upon their complexity or something else?

10. Is there any requirement that all of the sold real estate and or the purchase of the tax shelter be in one state, or can they be in any of the 50 states spread out?

My questions above are mainly aimed at jumping from SFH's and two through four plexes into owning Part of a syndication aimed at buying 100 plus unit multifamily complexes, either as a GP share, or an LP share.

Many people are aware of a 1031 exchange, however if they are looking to exit their active real estate portfolio, it's not always the solution they are looking for. If you are wanting to sell your real estate property, but are worried about paying taxes on the capital gains, a great strategy to consider is a 721 Exchange. Section 721 of the Internal Revenue code allows an investor to exchange property held for investment or business purposes for shares in a Real Estate Investment Trust (REIT) or an Operating Partnership without triggering a taxable event.

Many investors are aware of a 1031 Exchange where an investor must find a replacement property to defer capital gains taxes on the property that was sold. Section 721 differs in that it allows investors to sell their real estate property without finding a replacement property. This type of exchange provides investors with a way of increasing liquidity and diversification of their real estate investments, while deferring very costly capital gains and depreciation recapture taxes that may result from the sale of properties. A 721 Exchange is a great investment tool for real estate investors that are looking for diversification, tax-deferral or estate planning.

Investors can contribute the funds from a property that has already been sold into a 721 Operating Company and receive Operating Partnership Units (OPU) or they can also sell the property directly to the Operating Company in exchange for OPUs.

There are many benefits associated with a 721 Exchange. Here are a few below.

• Tax Deferral: Deferring the taxable income from the sale of their real estate property.
• Consistent Income: Operating Partnerships can issue dividends or distributions so that the investor has cash flow.
• Portfolio Diversification: Enables the investor to achieve diversification across geography, industry, tenant and asset class in an Operating Partnership structure. The investor is no longer dependent on just one asset to provide cash flow and appreciation.
• Estate Planning: This is a great estate planning tool to utilize when preparing an investors real estate asset to be passed down to their heirs. Instead of real estate assets, their heirs can receive easily divisible shares in the Operating Partnership that can be much more easily liquidated upon passing of the estate. The heirs can choose to hold their shares and receive dividends or sell them.
• Passive: Allows investors to trade an actively managed real estate asset for a passive investment in an Operating Company that is typically run by an institutional asset management firm.

Have you heard of a 721 exchange before? If not, what questions can I answer for you?

 Sorry I misunderstood your terminology the first time I read it. You will calculate the correct amount of depreciation recapture by removing the cost of the land from how you calculated above and taking 10 years. If you do an installment sale you will pay in the first year and subsequent years the pro rata depreciation recaptured through installment sale income reported on Form 6252. It's impossible to calculate without knowing all the terms of the deal you're trying to make. 

Better options are to leave it to someone or to do a 1031 exchange, which you can do just for the recapture. You don't have to put the capital gain or the undepreciated principal into other real estate.