All Forum Posts by: Daria B.

@Daria B., The issues that require a special form of transaction when you want to include improvements are that you cannot take title to your new property before you close the sale of your old property.  And you cannot exchange into improvements on property you own.  

While this would seem to eliminate your opportunity to add improvements, a reverse improvement exchange still allows that. Instead of buying your new property we as the QI form a holding entity called the Exchange Accommodating Title holder (EAT).  The EAT holds the property for up to 180 days while you improve it.  And then you end up with the property after selling your old property and using those proceeds to move them into the EAT property.

The two big disadvantages to these are that you have to have a source of money to buy the new property.  And a regular lender cannot do these types of loans.  Secondly they are very complicated and expensive costing several thousand dollars more than a regular 1031 exchange. 

@Daria B. You will need to work with a QI and a Lender to determine. It would depend on sale price, net sale price, equity, initial equity, capitalized expenses on previous purchase and a few other factors. If you have the right lender and the right qi and the right total acquition price you don't need to come out of pocket or pay capital gains. 

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. 

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. 

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.)

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

@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.

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.