All Forum Posts by: Natalie Bender

@Cody Sims 

A 1031 Exchange requires that your Dad, the taxpayer, purchase a Iike kind property. Since he is selling in the US, this can be any real property in the US that going to be held for business, investment, or trade use.

Yes, he can purchase multiple properties of different sorts (single family home, commercial building, DST, Mineral Rights, etc.)

One important thing to keep in mind: in order to defer 100% of the capital gains taxes, one would have to spend ALL the cash proceeds from the sale of the property and purchase equal to or greater than the net sales price. Net sales price is the sales price less closing costs like agent commission, escrow fees, transfer tax, and recording fees.

I would recommend talking to a Qualified Intermediary for specific advice. Your dad will need a QI in place to facilitate the 1031 exchange. Dave Foster is always a fantastic resource in this community. I would also recommend Excel1031, Weiming Peng, I have personally worked with him on many complicated exchanges.

Shoot me an email if you have any follow-up questions.

If you are close to retirement or looking to plan ahead I would recommend, Cashing in Tax Free written by Leslie Pappas. This book is your ultimate guide to tax-free retirement and estate planning using 1031 exchanges and DSTs.

A hidden expense that is impacted by capital gains is Medicare payments, if you are close to 65 or older consider the below:

The monthly amount you pay for Medicare Part B and D is based on your Modified Adjusted Gross Income (MAGI) from 2 years prior. MAGI includes capital gains recognized. 

 in 2024 For Medicare Part B (Medical Insurance):

• The maximum monthly premium for high-income beneficiaries is $594.00. This applies to individuals with annual incomes of $500,000 or more (or $750,000 or more for married couples filing jointly).

For Medicare Part D (Prescription Drug Coverage):

• The premium varies by plan, but high-income beneficiaries pay their plan's premium plus an additional $81.00 per month at the highest income level.

• The minimum monthly amount one will pay for Medicare in 2024 is $174.70. This is the standard premium for Medicare Part B (Medical Insurance) that most beneficiaries will pay.

Your adjusted gross income (AGI) directly affects the amount you must pay for Medicare premiums, particularly for Parts B and D. Here's how it works:

1. 1. Income calculation: Medicare uses your Modified Adjusted Gross Income (MAGI) from two years prior to determine your premiums. For example, 2024 premiums are based on your 2022 MAGI.
2. 2. Income thresholds: There are income thresholds that determine whether you pay standard or higher premiums. In 2024, individuals with MAGI of $103,000 or less (or $206,000 for married couples filing jointly) pay the standard premium.
3. 3. Income-Related Monthly Adjustment Amount (IRMAA): If your income exceeds these thresholds, you'll pay an additional amount called IRMAA on top of the standard premium.
4. 4. Progressive increases: As your income increases, so do your premiums. For 2024, the premiums are structured in tiers, with the highest tier being for individuals with MAGI over $500,000 (or $750,000 for married couples filing jointly).
5. 5. Affects both Part B and Part D: Higher income affects premiums for both Medicare Part B (outpatient care) and Part D (prescription drug coverage).
6. 6. Annual adjustments: These income thresholds and premium amounts are adjusted annually.

It's important to note that various types of income can affect your MAGI, including wages, Social Security benefits, pension payments, and even tax-exempt interest from municipal bonds. Additionally, one-time events like selling a home or making a large withdrawal from a retirement account can potentially increase your MAGI and affect your Medicare premiums two years later. 

There are a lot of great responses here, and I think the most important ones are the ones pushing you to do what is right for you and your family. 

I am an active real estate investor and own 3 properties. When you are in the grind the expenses and stress can add. 

As mentioned prior, a DST may be a good fit. A DST (Delaware Statutory Trust) is 1031 exchange compliant and allows investors to exit active real estate. Look at this blog post, I think it will resonate with you. Shoot me an email if you would like to talk more.

https://www.biggerpockets.com/member-blogs/7993/48729-are-your-rental-properties-weighing-you-down

@David Charles Edwards 

Due to the regulations around these investment products, I am limited on how much information I can share on a public forum without knowing your accreditation status, financial background, investment goals and risk tolerance. My email is below...I would be happy to do a deep dive on DSTs and see if they would be the best financial product for your specific needs.

My best advice would be to to look at quality sponsors that have a track record to back their reputations. There is always a cost to invest whether that is buying a new property or investing passively, however if the DST performs like projected the appreciation upon sale could out weigh those costs. Reach out any time.

@David Charles Edwards, as mentioned above 1031 into a portfolio of DSTs could be the right fit. A DST is a hands-off, institutional grade real estate investment (apartments, self storage, commercial, medical office, etc), that allows the investor the option to diversify into multiple markets and industries around the country. DSTs can provide steady cash flow, tax deferment and will keep pace with inflation as you are still invested in Real Estate, just passively. Professionals with decades of experience and proven track records do all the heavy lifting. Investors must be accredited. Here is a blog post written by Leslie Pappas, you may find it speaks to you.

https://www.biggerpockets.com/member-blogs/7993/48729-are-your-rental-properties-weighing-you-down

@David Song work with an experience qualified intermediary to help facilitate the 1031 exchange of two properties into 1. I would recommend Excel 1031, Weiming Peng, he is facilitating the exchange of 6 properties into 3 DSTs for a client of mine. Give him a call and he can walk you through the difference scenarios that may arise. 510-316-8078

@Angela A. My family is in the exact same position as you. We own a 1 BR in PB bought in 2010 with a 3.85% 15 year loan (refied in 2015). It has appreciated almost 2.5X of the original purchase price, however the cash flow is typically $25 in the red every month sometimes more with maintenance issues. 

I am in the Alternative Investment space and help investors transition from active real estate to passive using trapped equity so it is driving me crazy to be sitting on a huge amount of trapped equity. 

That being said I believe the smartest play is to stay put and hold, the mortgage is being paid down, the interest rate is much lower than current rates. SD demand is not going anywhere.  You and I both know there is not much building in the area so supply will remain low. 

Ultimately, my goal is to wait for rates to move down and lenders to allow HELCOs on investment properties with a fixed rate. Then take the HELCO funds and invest in a much higher cash flowing investment. Pay off HELCO, REPEAT.

If you are an accredited investor I can discuss some Alternative investments I am personally looking at to generate income that offer tax advantages to shelter some income. My contact is below, shoot me an email and we can talk further.  

@Jean Deeb 

I am a Registered Representative, which is financial industry talk for a Financial Professional holding different Series registrations. A Series registration are financial exams granting a Professional the ability to give recommendations and place investors in different financial products like DSTs, REITS, Mutual Funds, etc.

DSTs are SEC regulated Real Estate securities, meaning they are for accredited investors only. I have been in the DST space for 2 years, however my Firm has been specializing in DSTs since their inception, in the early 2000s.

Due to the regulations around these investment products, I am limited on how much information I can share on a public forum without knowing your financial background, investment goals and risk tolerance. My email is below...I would be happy to do a deep dive on DSTs and see if they would be the best financial product for your specific needs.

@Brynn Walden 

30+ in active real estate is quite the accomplishment and I’m sure it feels like familiar territory. Making the switch to passive investing can seem overwhelming at first.

DSTs, mentioned above are available to accredited investors only. Assuming you are one… The Founder of my company wrote a book on transitioning from active management to passive. You can find it on Amazon, or I could mail you a copy. The book is a guide on the exchange process, addressing pros and cons, as well as fees and potential earnings. Over the years we have narrowed down the vast number of Sponsors in the industry to a short list, all with amble track records. However just sharing a list of Sponsors would do you a disservice; the investments you make must match your investing objectives, risk tolerance and values. Below is my contact, reach out if you would like a copy of our book.