All Forum Posts by: Natalie Bender

Greg Scott is correct, you will have to pay capital gains tax on any monies you take possession of. If you are under contract talk to a qualified intermediary immediately!! As for title, you need to 1031 exchange under the same name as the relinquished property. If that property is till under the LLC you will need to purchase under the LLC.

If you have taken ownership of the sale proceeds your next homework assignment is to look into Qualified Opportunity Zones and Qualified Opportunity Funds (QOZ, QOF), note the same accredited investor status still applies. 

A quick summary:   

A Qualified Opportunity Fund is an investment vehicle organized as either a partnership or corporation that holds at least 90% of its assets in Qualified Opportunity Zone property. QOFs can make investments in a wide variety of real estate and new or existing businesses, including commercial real estate, housing, infrastructure, and start-up businesses. QOFs can hold single or multiple assets. QOZ property includes interests held by the QOF in a Qualified Opportunity Zone Business (“QOZB”)

An investor has 6 months from the sale of a property to invest, and the rules permit actual receipt of the sale proceeds. You only have to invest the capital gain from the sale (partial capital gain investment is ok). Under the current law, the taxes would be deferred until 12/31/2026 and ultimately due by 04/15/2027. The QOZ community believes that there is bipartisan support to extend the deferral period.

If you remain in an QOZ for 10 years than any growth/appreciation on your original investment is returned tax free. For example, if you invested $100K and after 10 years the value of the investment is $200K, one could cash out the entire $200K tax free. 

Hope that helps!

DSTs (Delaware Statutory Trusts) are as close to passive real estate investing as you can get while still holding real estate and having most of the same tax benefits.

DSTs function as investment vehicles that hold ownership of income-generating properties, granting investors fractional ownership in various types of commercial real estate such as apartments, self-storage facilities, build-for-rent properties, and NNN (triple net lease) properties. Opting for a DST allows investors to spread their investments across multiple high-quality properties, benefiting from the advantages of a 1031 exchange to defer capital gains tax. Additionally, this structure eliminates the need for active management, as the real estate assets within the DST are managed by the sponsoring entity.

As an investor your level of activity would include collecting monthly distributions, receiving  quarterly reports on investment, file taxes annually and 1031 exchange your investment every 7-10 years (sometimes shorter depending on the market). DSTs are considered real estate securities and are offered to accredited investors only.

Due to the passive nature DSTs are not meant for every investor and it is important to seek education to see if a DST is best suitable for you. Shoot me an email or DM and I can go into more details.

@Brandon Rizzo

I own in Leander, and have a fantastic Property Manager. If you end up renting and want a Property Manager rec shoot me a DM.  

Hello @Mike Savage, I would agree with Dave Foster. A portfolio of DSTs may be a good fit in your situation. One thing to keep in mind, DSTs are typically held for 7-10 years, after which you can 1031 exchange into a vacation rental, more DSTs, any like kind property or cash out. You have options. Here is a blog post that may speak to you. 

Shoot me an email if you want to talk more. I also lived in Asia for 5 years, managed my CA and TX properties from there (not easy). If you haven't been there yet you are in for a real treat!!! 
 

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

I would agree with both Dave and Brandon on the long term outlook of the REIT. I work with clients that 1031 into DSTs, some of which are slated from the start to go into the Sponsor's REIT utilizing the 721 UpREIT. These clients have usually completed a few 1031s and are ready to move off that cycle. We say when you are in the REIT, "you are in it to win it" but their hold is much much shorter than yours would be at age 41.

@Joan Liu you have 45 days to identify your new properties. If you start approaching day 45 with no contracts. I would be happy to discuss possible backup strategies. Email below. 

@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