All Forum Posts by: Daria B.

Quote from @Alex Olson:

Having rehab funds as part of your 1031 exchange is a part of most of my clients transactions here in KC. You have to have a quality QI and lender to help guide you on how best to do this. @Dave Foster is an exceptional QI and it would depend what market you will exchange in to to find a lender that is solid. 

Can you elaborate on “Having rehab funds as part of your 1031 exchange is a part of most of my clients transactions”.

When I asked about rehabbing it is after the purchase of the new property from the exchange. So I would either be putting out of pocket money into the property that I now own or taking the money from the gain to put into the property. Simple ex: net sales $200k, purchase $150k with $50 remaining subject to cap gains (or not?) that goes toward rehab (ie new hvac or interior work). And if I am able to use it for putting into the purchased property is the $50k subject to cap gain or not?

Quote from @Alex Olson:

Having rehab funds as part of your 1031 exchange is a part of most of my clients transactions here in KC. You have to have a quality QI and lender to help guide you on how best to do this. @Dave Foster is an exceptional QI and it would depend what market you will exchange in to to find a lender that is solid. 

Yes, Dave and I have already spoken about 1031. This was not one of the things we discussed though and was hoping to hear from investors who did this in a 1031 and how they managed to pull it off.

Hi

After finding this as one of the alternative 1031s on @Dave Foster pdf overview I am thinking it’s a strategy I can look to rather than finding a ready-2-rent property to buy.

“Improvement Exchanges allow you to purchase properties needing improvement and complete the value­ add repairs using your 1031 exchange proceeds.”

Then I found this that James Boreno posted: https://www.biggerpockets.com/forums/104/topics/1165299-how-...

I’m interested in the part where he 1031 is property and bought something that needed repairs so his out of pocket - after purchase - allowed him to rehab the property.

Is this is a viable strategy often used rather than buying all ready properties that require no work? I’ve seen a few around town that would be purchase candidates with some out of pocket after purchase work that’s needed. 
 
I realize the net sale going into the exchange property needs to be at same amount or if below (cap gain tax will be on sale $ not used for purchase).

Cheers!

Quote from @Bill B.:

I did my first 1032 with Dave in September. 

1) you don’t even have to submit a list of 3 properties until day 45 after you close. 

2) I was able to close before day 45 on my new property so it never even came up. 

A week or two before your property closes you get a property or two under contract. That way your inspection contingency overlaps your closing date. You close on your sale and then you can buy anything you have under contract without ever worrying about the 45 day list. 

There’s was literally zero stress about being able to close before 180 days (I just got that automated email yesterday saying I had a few days left.)

A property or two….I’ve never had more than one property under contract. How does that work as obligation to buy considering I would be entering into a contract? With the amount I am dealing with it’s only one property I would be buying. 

Quote from @Dave Foster:

@Daria B., that is correct.  The only list that matters is the one that is in place on midnight on day 45.  

I'm not getting all the right information then from other sources. Thanks for clearing that up. I still think the requirements should not be limited to just 3 properties but that's me. As you said, I can start looking before closing to identify and be ready to do an offer and if it doesn't work I would still be looking for properties that meet my criteria to include in if one falls out.

Also, I tried to get to your web site using the signature link but it's not working. I see 2 (http://) in your signature but when I try the website itself it does not display. I worked with the url a bit and finally got to your web site.

Quote from @Dave Foster:

@Daria B., during the 45 day period anything goes.  Your list can be changed at will.  It is only after day 45 that you are stuck with what is on your list and have to choose from only what is on the list.

It's because of all the things you mention that I always recommend that you treat the 45 day period not as an identification period but as an "I gotta get my property under contract period."  The further along in the process you can be the less time risk you have.

The pressure of the 45 day list usually ends up being kind of a red herring.  Folks stress about it.  But who really identifies a property and then takes 45 days to get it under contract.  It's more common to spend a few days negotiating an original contract.  So the probability you can actually find and get a contract during the 45 day period is pretty high.  Unless you're looking for an incredibly unique property.

If the market is incredibly hot then negotiate your purchase first and then execute your sale.  In a seller's market you as the seller of your old property have all the power.  

And always remember that there is no penalty for starting and not completing a 1031 exchange.  So no reason to give up before you give it a shot.  You never have to pick an inferior property.  And most often (like 90% of the time) you'll find a good replacement.

Admittedly, I feel a little less apprehensive after reading this. If the exchange didn’t work out all I would be out is the cost of paying the exchange company considering they would be holding the money from the sale transaction.

Why I was also hesitant is the “only” having 3 properties - but - .....

….are you saying that if I identify 3 from the start of the 45 days and on day 5 I lost one due to it being out bid by me or what ever reason it was no longer viable, that I can find and put another property in the mix of my original 2 properties?

Daria

Hi all,

I've read a lot so far about this topic and the more I read and see the restrictions I don't know if it's something I want to venture into. It was a nice thought at first reading of avoiding capital gaines but then I read about the 45 days (max 3 properties) no quarter if issues.

Rhetorical, but why does the IRS not see that no one controls the market and identifying 3 properties with no guarantee of closing and if something goes wrong, that it's no more exchange. And of course money has now been paid to the 1031 xchange company for starting the process so that's now gone as well.

Anyway, after finding this out I wanted to hear from others that began a 1031 but it didn't work out and why. 

Maybe some enlightenment on how to make this work when there is no controlling the market. Meaning, I find 3 properties but then someone else comes along and buys them up or for some reason the seller decided not to sell. Anything can happen that would exclude what I found to no longer be viable, which is why I don't understand that at least within the 45 days other properties could not be included. Anyway, it's the IRS.

Cheers!

Daria

Quote from @Account Closed:

When you sell a rental property, and you've taken depreciation deductions on certain components of the property, such as flooring, you may be subject to depreciation recapture. The depreciation recapture rules require you to report any gain attributable to the depreciation deductions you've previously claimed.

In your example, you spent $7,000 on flooring in 2019, and let's assume you started depreciating it in 2020 over the standard 27.5-year period for residential rental property. If you sell the property in 2024, the remaining "what would have been depreciated" over the subsequent years is subject to depreciation recapture.

Here's a simplified calculation:

1. Total Depreciation Taken: Let's say you've taken $1,000 in depreciation each year from 2020 to 2023, totaling $4,000.
2. Remaining Depreciation to Be Recaptured: The remaining depreciation that would have been taken over the years 2024 and beyond (up to the end of the useful life, which is 27.5 years in total) would be $7,000 - $4,000 = $3,000.

When you sell the property in 2024, the $3,000 remaining depreciation would be subject to depreciation recapture. The recaptured depreciation is taxed at a special rate of 25% as of my last knowledge update in January 2022. This rate can change, so it's essential to check the current tax laws at the time of the sale.

Thank you best explanation ever. 

I didn’t understand what was being recaptured. I thought the remaining was just a loss and now I see it’s being taxed as it would have been had I kept the property to the end of the depreciable years.

With that said, can I assume that if the depreciable asset is kept for the full life and then is sold, there isn’t anything to recapture and no tax consequences other than capital gains?

Hi

In selling a rental property I know anything that was being depreciated is subject to recapture.

My question is, if I spent $7k in 2019 on flooring that is depreciated over the years of 2020-2023, and I sell in 2024, is the remaining “what would have been depreciated” over the 27.5 yrs just lost?

Cheers!

Quote from @Colleen F.:

@Daria B. yes I still own it. Neighbor was okay for a while and then this. She was the worst when she was on the board then she crossed the wrong people and they got her off.  For some personal reasons I can't sell now.  

I used freedom of information act to make a request to get the information.  I am stretching here but the incident years ago was a different property with student renters, it was in the paper and not local. If I recall I may have had to call a detective locally to find out where to get the report.  or maybe it listed the court where the charges were filed in the paper. 

Sorry to hear about your woes. For a while I didn’t want to deal with students but they turned out to be the best tenants. Go figure.

This is a first first for me and I'm beyond irritated with the HOA and toxic neighbor. I will be contacting an attorney to get advise on both (here goes the ($$$) :>)

I think the HOA is trying to push me out now as the toxic next door is escalating. They send violation letters with no proof of violation and want me to prove otherwise. It's a backwards world.

I’ll google FOIA to see what i can find and start with the local police to see if I can get a report or if there is one.