How to Maximize Cash Flow With a 1031 Tax-Deferred Exchange

The World without 1031 Tax-Deferred Exchange

Let?s say you bought a residential property in the Bay Area for $200K fifteen years ago and financed it with a $160K loan. Since the property is located in a good area, its value has appreciated to $1M. Over the years, you refinanced the original loan to consolidate your other debts and currently owe $300K on the property. Each month, you collect $2,500 of rent. After paying $1,800/month for the loan, $350/month for property taxes and $55/month for insurance, you barely have any money left to pay for maintenance and other expenses.

As you grow older, you realize that you need a second source of reliable income; so, you are not completely dependent on your salary. Your company says its employees are its most valuable assets, but it also outsources many jobs to China and India to cut costs. You know you should not blame your company. It has to remain competitive. So when you see an attractive multi-tenant shopping strip in a middle-class suburb of Dallas, 100% NNN lease with $200K/year of Net Operating Income (income after all expenses except the mortgage payment) on the market for $2.6M, you get excited!

Since the residential real estate market in the Bay Area has softened, you consider selling your rental property to buy this shopping strip. You estimate that you would have to pay about $200K in federal and state income taxes on $800K of capital gain ($1M less $250K purchase price and selling fees, plus $50K in depreciation recapture). You just hate having to pay $200K to the government ? money that may go toward your down payment on the shopping strip. There is a better way ? a way to defer the income tax.

What is a 1031 Tax-Deferred Exchange?

Section 1031 of the Internal Revenue Code generally provides that neither gain nor loss is recognized if qualifying property is exchanged for other qualifying property of a like-kind. In the above scenario, you may defer the payment of $200K in both federal and state taxes if you acquire another investment property with equal or greater debt and equal or greater equity. In other words, if you buy another investment real property for $1M or more, using all of the net proceeds as down payment, then you may defer the $200K of taxes. Essentially, the government would lend $200K to you, without interest. And you may repeat this deferral and never pay income taxes.

How Do You Qualify for a 1031 Exchange?

You must comply with several strict rules. Failure to satisfy any of the rules will disqualify your transaction from a 1031 tax-deferred exchange.

1. You must trade up. The property you buy (replacement property) must have an equal or greater debt AND an equal or greater equity than the property you sell (relinquished property). This means you must put all of the net proceeds from the relinquished property to the replacement property and the fair market value (FMV) of the replacement property must be more than the FMV of the relinquished property.

2. The qualifying property must be of like-kind. The relinquished and replacement properties must be held for productive use in a trade or business or for investment, before and after the exchange. And one kind of property may not be exchanged for property of a different kind. For instance, you may not exchange a residential rental property for one you intend to occupy as your principal residence ? not qualifying property. And you may not exchange a factory for equipment ? not like kind. On the other hand, residential and commercial real properties are of like kind. So, you may exchange a residential rental property for a shopping center.

3. In a delayed exchange, you must identify the replacement property within 45 days and receive it within 180 days from the closing date of the relinquished property or by the due date of your tax return (with extension) whichever is sooner.

4. You may identify up to 3 replacement properties and must receive at least 1 of the 3. Alternatively, you may identify as many properties as you want as long as the total value of these properties does not exceed 200% of the value of the relinquished property.

5. You should have an exchange intermediary hold the sales proceeds of the relinquished property. Most investors use an exchange company as the qualified intermediary for a delayed 1031 exchange.

6. If you exchange a property with a related person (your children, parents), then both parties may not dispose the properties within 2 years.

7. If the sale proceeds are deposited in an interest bearing account during the exchange, you must receive the interests AFTER the close of escrow of the replacement property.

Strategies for a 1031 Exchange

The following strategies are intended for investors looking for commercial property as a replacement property.

1. Start looking for a replacement property early. Since you have only 45 days to identify replacement properties, you should make an offer as soon as the relinquished property is in escrow. By the time you close escrow on the relinquished property, you should have one offer accepted on a replacement property. This first choice does not need to be the most desirable property at the best price. You should think of it as a ?back-up? property. It is intended to take away your worries, such as ?Oh my God, what if I cannot find a replacement property??.

2. Identify more than 1 replacement property. If something unexpected comes up with your first choice, e.g. the soil is contaminated, you have a second and third choice to fall back on.

3. Specify a 30-day due diligence and cancellation period in the contract. This will give you more time to specify more than 1 property.

4. Think twice about choosing a replacement property with loan assumption. It?s much harder to get lender approval for loan assumption than for a new loan. Moreover, you have only once chance to get approval for loan assumption versus many chances to get a new loan approved. You don?t want to have your loan assumption denied by the lender after the 45 day identification period.

Questions for a 1031 Exchange Intermediary

Technically, you don?t need a 1031 exchange company to handle the exchange. However, it is advisable to have an expert assist you. This company will ensure that you comply with strict IRS rules. To decide which company to assist you, you should consider:

1. The fee is around $500-$750 per transaction. The company that charges less tends to limit you to 3 replacement properties and the company that charges more may not have that limit.

2. Whether your proceeds will be deposited in a separate trust account or commingled with the company?s main account. In the event that the company goes under, you don?t want your money stuck in that company?s account while the 45 day period expires.

3. Whether your proceeds will earn any interests and the money is insured.

What if you want to buy the replacement property first?

For some investors, the strict 45 day identification period and 180 day exchange period may be too short. The alternative is to consider a reverse exchange. It is a transaction in which the replacement property is owned by an intermediary party during the pendency of the like-kind exchange until the taxpayer is able to sell her relinquished property. Then the replacement property is exchanged to the taxpayer. A reverse delayed exchange is an advanced strategy, and you should consult a tax advisor to guide you.

The Happy Ending

Your offer of $2.5M for the shopping center is accepted. The bank lends you $1.875M at 6.5% interest amortized over 25 years. After paying $12,660/month for the mortgage, you still have $4,000 a month positive cash flow! Now you realize Uncle Sam is very smart. He allows you to have a tax-deferred exchange so you can maximize your profits. In return, he may collect more taxes later. And you are OK with that as both you and Uncle Sam win.

DISCLOSURE: To ensure compliance with requirements imposed by IRS Circular 230, we hereby inform you that the U.S. Federal tax advice contained in this article is not intended to be used nor has this article been written to be used, and it cannot be used, by any taxpayer for the purpose: (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. No tax advice is being given by this article for any specific transaction. If you desire advice about any particular transaction, then please consult a professional tax advisor.

David V. Tran is the CEO eFunding Inc., a commercial real estate brokerage, commercial loan broker, property management, self-directed IRA investment, TIC and syndication company in San Jose, CA. His website is http://www.efundingcom.com. He may be contacted at (408) 288-5500. eFunding does business in all 50 states. He is selected as Pensco Trust?s (a major self-directed IRA custodian) Preferred Professional. David is well-known for his 3 FREE real estate investment seminars:

1. How to invest in commercial real estate for retirement income NOW.
2. How to maximize cash flow with 1031 tax-deferred exchange.
3. TIC/Syndication: strategy for small investors and self-directed IRA investors to acquire high-valued properties.
   

   You are welcome to share this report, unedited and in its entirety, with anyone you like. You may not remove this text. ? 2007 eFunding, Inc.
   Andrew La is a real estate and tax attorney, CPA and Real Estate Broker in San Jose.

1031 Tax Deferred Exchanges - an Overview

Normally when investment property is sold, the IRS will tax any gain. The Federal Capital Gains rate is currently 15% and some states assess an additional tax as well. There is also 25% recapture rate on any depreciation taken over the length of ownership. Sellers not considering these factors can have serious tax consequences when selling investment properties. Section ?1031 of the Internal Revenue Code (IRC) provides an exception to these tax rules and is an important tool for any real estate investor.

Section ?1031 allows for deferment of the capital gains and recapture taxes, provided that certain rules and processes for exchanging are followed. This process is called a ?1031 Tax-Deferred Exchange or a ?Like-Kind? Exchange.

The Rules As mentioned, there are rules that must be followed to qualify for tax deferral using a ?1031 Exchange. A minimum of two properties must be involved in an exchange: one (or more) being sold, and one (or more) being purchased to replace it.

Not all properties qualify for an exchange: they must be held for productive use in trade or business or for investment. Qualifying properties can include rental properties, raw land, office space, and tenant in common properties. It is important to note that personal use properties, such as a primary residence, do not qualify.

The properties being exchanged do not need to be identical in nature, they just need to qualify as investment. So a piece of raw land can be exchanged for a condo, or an apartment complex could be exchanged for a Tenants in Common investment etc.

To defer all the capital gains tax, (1) the value of the replacement property must be equal to or greater than the sale?s property, and (2) all of the sales equity (cash remaining) must be reinvested. A ?1031 Exchange can still be used even if all the money will not be reinvested. Any money that is included in the exchange and used to purchase replacement property will be tax deferred and any remaining amount will be taxed. This is called a partially deferred exchange.

The most important requirement for a successful exchange is that an independent third party- called an Accommodator or Qualified Intermediary must be used. If a property is sold without a Qualified Intermediary and the proceeds are given to the seller, the IRS will assess the capital gains tax and the opportunity to defer will be lost. In a ?1031 Exchange however, the proceeds are forwarded to the QI who holds them until the client directs their use to purchase replacement property.

There are three critical timing rules. An exchange must be entered into prior to the close of the sales property so it is very important to contact the QI early on. Within 45 days of the close of sale, potential replacement property must be identified in writing with the accommodator. And within 180 days from closing of the sale, all replacement property must be purchased.

By following these guidelines with the help of a 1031 Specialist, investors have the opportunity to build wealth by reinvesting undiminished gains into their next property.

To talk with a 1031 Exchange Expert or call 866-405-1031

Investment Properties - 1031 Exchanges

If you are selling an investment property and planning on re-investing then the 1031 exchange is right up your alley. A 1031 exchange is basically a tax shelter allowed by the IRS where you sell an investment property and then re-invest the profit from that sale into another property. Now, keep in mind that you must re-invest the entire amount from the sale. This is not to say it has to be in one property, as long as you re-invest the full amount it does not matter if it is spread amongst several properties. In doing the exchange, an intermediary or third party, usually a company or financier will hold the funds from the sale until a"like-property" is found whereupon the funds will be released to complete the sale.

From the time that you sell your investment property you then have 45 days to identify the property or properties that you intend to purchase with the proceeds. There are also a few safeguards built into the process to ensure that it is not abused. One of these is called the 95% Exception rule. This rule states that you must acquire 95% of the property that you declare an intent to purchase or "identify." Another guideline is the fact that once your sale property closes, you have six months from that date to close on your identified properties.

Almost any kind of property qualifies for a 1031 exchange except for your primary residence. This makes the 1031 exchange a great opportunity for beginning investors to make their mark on the investment market. For complete information on 1031 exchanges it's a good idea to check the IRS web page which features complete and comprehensive information on everything that is involved with this type of financial transaction. There is also a healthy selection of companies that operate as the financial intermediary that can provide accurate info for the investor.

Frankie Bastek is a professional and experienced Realtor? spaecializing in the Orange County area. For the best service and advice concerning Laguna Niguel real estate, check out http://www.homefindings.com

Types and Features of 1031 Reverse Exchanges

A reverse exchange occurs when the taxpayer intends to make a like-kind exchange but, for some reason, acquires the replacement property before selling the relinquished property. The taxpayer may fear that replacement property vital to his business will be sold to another party.

Perhaps the reverse exchange is the result of the buyer backing out of a previously arranged simultaneous exchange or the seller forcing a premature closing on the replacement property. In any event, the taxpayer completes the replacement leg of the exchange first.

This is accomplished by using the buyer of the relinquished property or an outside party, known as an accommodator or intermediary, to purchase and hold title to the replacement property. At a later date in a separate transaction, the relinquished property is transferred to the buyer and the taxpayer receives the replacement property.

The taxpayer typically provides a loan to the accommodator to fund the down payment on the replacement property. The property is usually financed with an assumable mortgage. When the taxpayer receives the replacement property, he assumes the mortgage.

There are three types of reverse exchanges:

* Type 1: "Reverse regs." exchange.

* Type 2: "Biggs"(9) reverse exchange.

* Type 3: "Simple" reverse exchange.

The first two types rely on an accommodator or intermediary who is hired to complete the exchange. The first transaction under these two approaches is the same. It is the separation in time between the first and second transaction that creates the deferred exchange.

The transactions for the "reverse regs." exchange (Type 1) are:

* First transaction: The accommodator acquires the replacement property from the seller. The accommodator holds title to the replacement property while the taxpayer seeks a buyer for his relinquished property.

* Second transaction: At a later date, after identifying the buyer, the accommodator exchanges the replacement property for the taxpayer's relinquished property. The accommodator immediately sells the relinquished property to the buyer.

Using a "Biggs" reverse exchange (Type 2), the second transaction becomes:

* Second transaction: At a later date, the buyer purchases the replacement property from the accommodator. The buyer then exchanges the replacement property for the taxpayer's relinquished property.

A reverse exchange can also be affected without an accommodator. In a "simple" reverse exchange (Type 3), the buyer serves a dual role, facilitating the transactions for the taxpayer and purchasing the relinquished property. A "simple" reverse is the rarest of the three types of reverse exchanges. It will most likely be the result of a simultaneous exchange that has unraveled.

Reggie owns and operates http://www.1031tax.us and knows how to to avoid the mental confusion associated with 1031s and savings through deferred exchanges.

When is a Reverse 1031 Exchange the Right Choice?

Tax-deferred exchanges are great opportunities for real estate investors. In a typical property transaction, the seller is hit with the capital gains tax. Fortunately, section 1031 of IRS code stipulates that no gain or loss will be recognized in a qualifying exchange. A tax-deferred exchange is not as simple as swapping properties though. There are specific deadlines the exchanger must meet in order to reap the tax benefits. Once the first property is relinquished, the replacement must be identified within 45 days and closed on within 180 days. If this schedule in not met, the exchanger stands to lose all the deferred benefits of the 1031 code. In the right context, a traditional 1031 can be ideal. In other situations, investors may benefit from more specialized types of exchanges. The investor who finds a new property before selling the like-asset will need something more advanced than a conventional exchange. This sort of investor should consider a 1031 reverse exchange.

There are many advantages to a reverse exchange, but the most obvious is that a property owner can find a replacement like-asset without time constraints. Controlling a replacement property in advance of selling the initial asset alleviates much of the pressure involved in a traditional exchange. A reverse exchange is an appropriate option for the investor who is ready to purchase a new building but has not yet sold the initial property of the exchange. In essence, a reverse 1031 avoids the risk of having to pay substantial capital gains taxes on a sale should an exchange property not be purchased in time.

However, a reverse exchange is not entirely without defined deadlines. The schedule for a reverse exchange is identical to that of a traditional exchange, except the relinquished asset and replacement asset trade roles. In a reverse 1031, the relinquished property must be identified within 45 days of purchasing the replacement. In addition, the relinquished property must actually be relinquished within 180 days.

The 1031 code can be hugely advantageous for investors. The tax saving are, in effect, like a 0% interest loan from the federal government that extends indefinitely. Many options and variations exist for exchangers looking for a tax-deferred benefit. But for the investor who has found a replacement property prior to selling anything from his or her portfolio, the reverse 1031 exchange is the clear choice.

Information from this article taken from http://www.allstates1031.com/

Christine Casalini is a freelance writer in Boston, MA. Her interests are investing, real estate and personal finance

1031 Exchange ? The Most Common Mistakes!

A property transaction related to a 1031 exchange into a Tenant in Common property could have a great impact on the financial stability of a person. Any mistake or a wrong decision in regards to a 1031 exchange can put you in deep trouble, besides unexpected financial liabilities.

It is often seen that most people interested for a 1031 exchange into a Tenant in Common property commit certain basic mistakes that jeopardize the whole transaction or results in a complicated legal situation leading to the client paying a huge tax or penalty amount.

Before I tell you about these common mistakes, let me first explain in brief what is 1031 exchange and how it helps.

Section 1031 of the IRC gives a chance to real estate buyers to defer the capital gain taxes that they incur by selling a property. It states, a real property owner can sell his property and then reinvest the proceeds to purchase of like-kind property and defer the capital gain taxes. Like-kind exchange is considered as one of the best-kept secrets of the Internal Revenue Code and very few CPAs, lawyers and financial advisors have proper knowledge about this.

By doing a 1031 exchange into a Tenants in Common (TIC) property, you can become a part owner of a large commercial property managed by professionals, who pay you a monthly income for the property. This is favorable for most people because it has got fewer strings attached compared to private annuity trusts, charitable trusts etc.

There are 3 Major mistakes that are generally committed by people going for a 1031 exchange into a Tenant in Common property.

a) Ensure that your investment company has their act together. Ask them for their history in TIC offerings, check referrals for satisfied clients. A good and experienced investment company should be able to provide you with multiple references of satisfied clients. Also check the properties available with them, a good investment property would only pick the best properties ? good real estate properties are hard to find and sells fast. While mediocre or small investment companies will deal with B grade or less desirable properties, the good investment firms will have only the best properties on offer.

If you are planning to do it privately, be cautious about getting into a Limited Partnership where only one or two members make all the decisions. Another alternative to could be to get a group of friends together and do it all by yourself, however, that is feasible only if you have extensive experience with commercial property and property management.

b) Choose a well-experienced qualified intermediary. A qualified intermediary is extremely instrumental in the successful completion of a 1031 exchange for Tenants in common property. They need to be well conversant with 1031 exchange rules. They ensure that all documentation and money transfer meets the guidelines set for the by section 1031 of the IRS.

Your Accommodators will set up your LLC. It is suggested that you should not work with an accommodator with whom you have an existing relationship. Your family attorney or estate planning attorney may not qualify as your accommodator. A small mistake here can lead to a hefty bill for taxes or penalties by the IRS, or even worse, the whole transaction might fail due to the incompetence of your accommodator or qualified intermediary.

c) Don?t try to cut corners on your property management company. This is extremely important for profitable performance of your investment. You will have to depend on your property management company for the day-to-day problems that will arise; they will be responsible for paying your property taxes in time and maintaining your building. Your property management company should be able to offer you a long term Triple Net Lease that has detailing of your annual income percentage along with scheduled increase. Only reputable management companies would be in a position to offer this. It is worth spending on a good property management company as you get a much higher return on your investment with them compared to any startup. Let your management company have a small profit because their performance is directly related to your investment stability and is going to get you multiples of that amount.

If you are hiring an experienced property management firm it is always a win-win situation of both the parties and you are sure to make the best out of your investment.

Avoid these common mistakes while planning your investment for 1031 exchange into Tenant in Common properties and you can ensure a continuous flow of monthly income while your investment experience a steady growth.

This article is written by Ray Smith, a marketing expert with years of experience in different industries and specialized knowledge on branding and Internet marketing. http://www.1031assistance.com

1031 Exchange

The 1031 Exchange, from the Internal Revenue Code Section 1.1031 is a code that can end up saving individuals money on certain business and investment property transactions.

The 1031 Exchange allows sellers of some real estate and personal property to be exempt from paying the capital gains taxes if they are ?exchanging? the property they sell for a new property of ?like-kind?. This code only applies to business property and investment property, not purely residential property.

An example would be selling a property used as an office for a business and buying a similar property that will be used as an office instead. Any profit made on the sale will not be taxed because it is to be used towards the purchase of the new property. The newly purchased property doesn?t necessarily have to be the same type and size, but it has to be used for the business or investment purposes. Similarly, a property purchased for investment purposes can be sold to buy a different property for investment purposes, without taxing the profit. The broad definition of exchanging for a ?like-kind? property allows for some flexibility.

There are further factors to be considered involved in the 1031 code. The purchase of the new property must take place within 180 calendar days of the sale of the original property. This gives individuals time to work out all of the details involved in purchasing and selling real estate. It is often more financially efficient to make the sale and purchase as close in time as possible. The 1031 code requires a qualified intermediary after 45 days of the sale to ensure that the gains are used towards the purchase of the new property. This prevents individuals from using the profit for their financial gain. Qualified intermediaries, however, charge fees for each exchange and additional properties.

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Check with Steve Cross in Las Vegas who is an expert in this area of Real Estate

Home Buying: 1031 exchange jersey new tax : Things To Keep In Mind

So you've decided you want to own a home and now you want to begin your search for one. Before jumping into a home search, there are a few things you should keep in mind when going about buying a home.

First things first, you cannot buy a home if you can't afford it! Don't assume how much you can afford, find out your loan eligibility. If you're planning on purchasing a car or any other high-priced item on a loan, then please stall such purchase until after you get your home as your eligibility reduces with every other loan you hold at the time of a mortgage application.

Next, when you go in to see a home, don't let an unkempt /untidy house put you off. Try and visualise the house in its best condition and see if it would suit you then. In fact, an unkempt house may put other buyers off and by some chance this may lead you into a better position when negotiating for the home, as the seller may find it difficult finding a buyer for his place.

If the home you decide to purchase is being sold by the home owner himself, don't deposit any earnest money with him directly. Such earnest money should be deposited in a trust account as some owners mistake such money to be theirs and hesitate in refunding the same if the deal falls through for valid reasons, such as financing or repair issues.

Once you've finalised on a home and go to get an appraisal of the home done by a professional appraiser, do not panic if the appraisal value comes below the actual price you decide to pay for the home. There are options you can consider in this case. You would have to consult your agent or your mortgage broker for some advice.

Some other factors you may want to consider are listed below:

- Any signs of leakage in the house near the roofs and the foundation walls

- Problems with the sewer drainage system, if any

- Neighborhood by daylight and night. Drive by and see for yourself before making a decision.

- Natural light. Are the rooms dark without artifical light? Does that concern you?

- The amount of property taxes that has to be paid every year

- Any structure on the property which may overlap into an adjoining property.

- Is the home located in an airport's flight path?

- Any planned roadways, which may eat into the property's front yard.

So, don't rush into buying a home without considering some of these factors. Wish you the best of luck in finding your new home!

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Why You Should Rent To 1031 destin exchange florida tax Live And Buy To Invest

Why you should Rent a place to live in and Buy a place for Investment - Did you know that in your Bank's Accounts "Your House" is placed in "Their Asset Book." That means that the house you own and live in, is a "Liability."

Rent Your Home; Don't Buy It; That Seems A Provocative Thing To Say, Don't You Think?

From the desk of Colm Dillon ...

Hello Colm here ...

So Why Do The Majority Of Us Do The Exact Opposite; We Buy & Don't Rent?

Countless articles have been written over the years on the wealth 'make up' of the richest people. While the percentage may vary depending on the individuals leaning, the real estate proportion will vary between 20% to 35%.

Here's a thought for the day; It's the basis of this report; It's one of the Tools you should use to create Wealth; so think about it before moving on!

In The Banks Accounts, Your House Is In "THEIR ASSET Column"

That Must Mean, That In Your Personal Accounts Your Home

"IS A LIABILITY"!

I want you to keep that thought in your 'open mind' as you grapple with this new concept. I write these articles to make you THINK and that can sometimes make you uncomfortable.

Here goes!

It's Hard to Justify Borrowing Money To Buy A "HOME."

Sorry, but it's economically very difficult, in wealth development terms, to justify buying real estate for you to live in, if you have to borrow money to do it, unless you put a massive monetary value on your emotions.

Please understand my purpose in writing this report and associating it to a site about real estate development.

A lot of us have to be financially smart to be able to accumulate enough capital to do our first development ... so this is for those people ... but maybe there are a few ideas in it for the rest of us as well ... so read on.

This wealth development concept, based on renting, was given to me many years ago by one of the most interesting and provocative speakers on economics I have ever heard.

He's name is Phil Ruthven and he created a company, Ibis International, an economic analysis and forecasting company. Phil also writes for the Financial Review and is in high demand as a speaker on economics.

By any reasonably observation, Phil is successful; both professionally and financially and so can buy a home, if and when he wants.

He doesn't, he chooses to rent and his reasoning goes something like this.

"When I started life as an adult," he said, "I was a 'single person' and my single status defined my real estate accommodation needs.

Later I became a 'twosome' and my real estate housing needs changed for the first of many changes.

When the twosome became threesome or foursome, by definition, our housing needs changed yet again.

Later in life, when kids grow up I will become a twosome again."

Now Phil contends that on top of our family profile changing, our work situation also changes; maybe a move interstate, which further complicates this equation.

In a scenario like this every time real estate is bought or sold and not rented, there are Stamp Duty, Legal Fees and agents Commission to be paid PLUS the costs you expended on decorating each home.

Add it up! You are talking about 'many' tens of thousands of dollars paid by you as a direct result of the choice you made to Buy Real Estate To Live In out of your net after Tax Income.

So Phil told his audience, "he has rented his real estate accommodation for more years than he cares to remember."

"Renting," he continued, "allows me to change my place of residence, at the lowest cost, having regard to my family's changing needs."

He further improves the deal by pre-paying his rent, sometimes for a number of years, and getting a handsome discount from the landlord. When his needs or mood changes again, he just moves on and repeats the process.

"But what about all that lost rent he had to pay?" I hear you say, "that surely reduces your wealth development."

And I say, "what about all that interest you pay on your non tax deductible home loan?"

Understand 'Rent and Interest' are money that comes out of your 'net after tax' pocket, we just call them different names; that's all!

In Phil's case he has clearly segmented his personal real estate accommodation, as rental, from his real estate investment ownership accommodation, maximizing the benefits of the wealth growth tools and enhancing his wealth development with little interruption to his lifestyle.

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Professor and webmaster of Stock-Trading-Market.com

Reinventing Real Estate, Part 1: 1031 county exchange monmouth tax Online and Empowered Consumers Are Taking Charge and Paying Less

For decades, the real estate world turned in a predictable manner. The roles of buyers, sellers and real estate professionals were fairly well defined and transactions followed a predictable path of yard signs, newspaper ads, open houses and miles of paperwork.

Recently, online and empowered consumers have changed the game. Real estate professionals now face issues similar to the ones that have transformed the retail, personal finance and travel planning industries. As technology advances and new business models evolve, the real estate industry has begun to transform itself from providing traditional, carefully controlled "agent-centric" transactions to new "consumer-centric" practices. The following is a look at some of the recent industry trends and how buyers, sellers and investors can expect to benefit. The "Five Ds" that are driving change in real estate are:

1. Disruption ? Over the past 10 years, the Internet has matured into a powerful platform for delivering real estate information, forever changing the interaction between buyers, sellers and real estate professionals.

2. Displacement ? The popularity and acceptance of self-service and consumer-direct business models is being felt by real estate professionals, who are striving to develop attractive new offerings for Web-savvy consumers.

3. Demanding consumers ? You now have more real estate knowledge, tools and resources at your fingertips than ever before. More savvy consumers tend to be more independent and demanding.

4. Downward pressure - Traditional real estate commissions of 5-6 percent of a property's sales price are facing downward pressure.

5. Developing alternatives ? The real estate industry is transforming itself to provide targeted services and exciting new options that add value for consumers. Disruption

"We are going to see our industry go through dramatic transformation via the Internet and consolidation of agents and companies." ? eRealty Times Columnist Dirk Zeller

Some industry observers have adopted Harvard Business School professor Clayton Christensen's term "disruptive technology" to explain recent developments in real estate. Though it's easy to point to the World Wide Web and advancing technology as the main changes in real estate, that's only part of what's shaking things up. Essentially, the real cause of disruption is not just technology, but technology-enabled real estate consumers.

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How To Get The Best 1031 bristow exchange tax Rental Accommodation In The Area By Using Your Capital

My report is for you to use your power to negotiate, not only a reduced weekly cost of accommodation, but also to get the best accommodation available in the area in which you wish to live.

Hello Colm Dillon here ...

Market conditions will effect the final outcome.

Irrespective, a good negotiation, following these guidelines, will save you money. Get to know the state of the market before you commence.

Determine how much you can afford to pay and then go higher. For example if you can afford $200 per week, start looking at a figure of say $250 - $260 per week. If you fall into a higher bracket; say $400 per week, start looking at $500.

Go to several real estate agencies and ask them what they have on their books at the amount you nominate. Also tell them your preferred areas.

Go through the normal selection process and pick the best place in which you would be happy living.

Confirm the weekly/monthly rental with the agent and the length of the lease term i.e. 6 months etc

Confirm with the agent that you really like the place, although there are a few others you like as well. Don't say which ones, just give the impression that their agency is not the only 'cab on the rank.'

Note: Final selection by you will be made on the basis of the landlord attitude, as you intend living in the property for a 'while.'

Start The Negotiation. Ask the agent to find out how much the landlord would accept for a 12 month lease. He will probably reply by stating the same amount back to you as you would pay for a six month term.

Start ramping up your approach by enquiring about a 2 year term. At this stage you should be getting the agent to phone the owner and coming back to you with a discount.

You could leave the agency for a hour or so ... allows time for the agent to see that you are giving serious consideration to the other properties, as well as theirs.

Don't be to automatic in your process. "Time" is a wonderful tool in negotiation.

Generally talk a bit more to the agent and raise the question of what discount the owner would accept for a 3 year lease term.

Again a phone call to the owner should take place. If the agent is making all the decisions without calling the owner, you should insist, as h/er does not have a big latitude in rental decision making. The owner is the agent's 'boss.'

You should expect a further discount from this latest approach.

The agent may start to feel as though the negotiating should be coming to an end. Don't worry, you are about to bring out the 'Big Guns.'

Confirm again that you are warming more and more to the property, but there are a few other things you want to raise.

Tell the Agent that you would consider pre-paying 12 month rent in advance, if the owner would come to the party on the rent. Emphasize, the lack of risk to the owner; a large one off payment in his hand now that could be used to buy more property, etc etc.

Expect a reduction and Get It.

Depending on how your are going in the reduced rental stakes, in approaching your target base rent price, you may have one further go and offer 18 months or two years rent payment in advance.

You may hold off with this final offer by leaving the office after the last response.

1031 bristow exchange tax

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Professor and webmaster of Stock-Trading-Market.com.

Real Estate Investing ? 1031 1033 exchange free tax Finding Cheap Houses

Real estate investing expertise can certainly accommodate the luxury home market. In some ways, the upper end of the housing marketplace produces easier success than the lower end. More skill, however, is required to sell the luxury home. But more important, supply and demand is critical in selling the luxury home. To get "stuck" with any home that does not sell easily can be treacherous, but sluggish sales for the luxury home can be disastrous.

"Cheap homes" are at the other end of the housing spectrum. "Cheap homes" abound everywhere. Every community in the country has cheap homes, because the predominance of the population lives in inexpensive housing. More people comprise the middle and low income bracket than the high income bracket.

"Cheap homes" is a very ambiguous term that is relative to an area. For example, "cheap homes" have lower value in a rural community than in a populous area like New York City. But even adjoining counties in any State may maintain different definitions of "cheap," even though separated by only a few miles.

"Cheap homes" do not reference slums or ghettos necessarily. Real estate investing in these areas might embrace federal grants or HUD Section 8 housing.

My focus in this article is the use of "cheap homes" as a starting place for a real estate investing career. "Cheap homes" in this article is NOT the bank "red lined" crime area, or where drugs and prostitutes are rampant, or where housing has been severely abused or neglected by property-owners and/or tenants. And "cheap homes" in this article is not the burned-out or dilapidated building.

My definition of "cheap homes" for the beginning real estate investor is the less-expensive housing that accommodates the middle or middle-low class citizen. The demand for this housing is usually high and constant. The risk for real estate investing is usually low. And the effort needed to penetrate this marketplace is easiest.

1031 bank exchange red tax

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Professor and webmaster of Stock-Trading-Market.com

1031 Exchange Escaping the Certainty of Taxes

'In this reality', said the good Benjamin Franklin, 'nothing is sure but death and taxes. While contemporary drug continues to make on a remedy for mortality, 1031 exchanges provide an invaluable mechanism against the foibles of the taxman. Allowing the change of one holding for another, this holding marketplace tendency can assist you have on to money that might otherwise finish upward with the IRS. How do you recognize whether you are qualified to go reward of this good holding tendency?

The best specification is that the two properties involved in the barter be in consumption for 'deal or fruitful purposes', that is that they are moneymaking concerns of some sort, such as a rental holding or vacation house. The holding intended for swapping must too occupy in the US, though it can be located at any level within.

1031 exchanges require the participation of what are known as Qualified Intermediaries, who trade with the paperwork involved in the switching, and accept a character similar to a holding buyer. The holding to be exchanged is handed over to this go-between, until the holding proprietor locates an original holding, at which level the switching can be made.

This character of holding change operates under rigorous guidelines and a demanding timetable. Once the new holding is sold, a listing of potential replacements must be supplied to the go-between with forty-five days, while the change itself must be completed within one hundred and eighty. The championship to both properties must stay undamaged throughout the whole procedure, then this is not the moment to disband any job partnerships that might be involved. Any deviance from these strictures can endanger the whole change procedure.

The properties to be exchanged must too be what is described as 'like-kind', significance that they are approximately equal. This does not intend that the two properties must resound one another completely, it merely refers to the fact that the holding relinquished and the one to be taken upward must both be appropriate for consumption in a related job or investment related manner. 1031 exchanges are not for consumption on residential homes, and then, for many folk, are of less value. But if you possess a job holding and would care to go premises without losing an amount of money to the taxman, so a 1031 change might just be the correct selection for you.

 http://www.1031-exchange-portal.com

Commercial Mortgage Strategies - 1031 Exchange Seasoning of Ownership Limitations

Commercial mortgage lenders will frequently have very specific requirements stipulating that purchase funds must have been in a verifiable account for a specific period of time, often 3-6 months or longer (this is called seasoning because it is tantamount to requiring that the funds have matured by being in the same place for a while). Seasoning of ownership for commercial mortgage loans is similar to seasoning of funds, except this requirement involves the minimum time someone has owned a commercial property before they can refinance the property. Most traditional banks require a minimum holding period (usually a year or more) before a commercial mortgage loan can be refinanced. That minimum period is the ownership "seasoning limitation", and if it is one year then it means that a commercial mortgage loan cannot be refinanced for at least a year.

That is not a particularly troubling limitation EXCEPT in the case of refinancing after a 1031 Exchange. In the case of Commercial 1031 Exchange properties, commercial borrowers should benefit from commercial mortgage loans for 1031 Exchange Refinancing without seasoning of ownership limitations , and there are a limited number of sources which do not impose ownership seasoning limitations on refinancing 1031 Exchange Properties.

WHAT IS UNIQUE ABOUT THE 1031 EXCHANGE REFINANCING SCENARIO?

In simplified terms, with a 1031 commercial real estate exchange, owners are required to reinvest their equity in a subsequent qualified purchase. Commercial mortgage borrowers who have properly completed 1031 Exchanges might want to tap into some of their equity shortly after a 1031 Exchange is completed via 1031 refinancing. These borrowers will usually encounter seasoning of ownership limitations from most lenders that will effectively prevent such a refinancing. If a commercial mortgage borrower wants to consider 1031 Exchange refinancing and has recently completed the 1031 Exchange, they should seek out a lender without seasoning requirements or limitations. However, there are many technical issues surrounding a 1031 Exchange and 1031 refinancing that will require commercial borrowers to consult with a qualified 1031 Exchange advisor before proceeding with refinancing of commercial 1031 Exchange properties.

Stephen Bush is the Founder and Chief Executive Officer of AEX Commercial Financing Group, LLC ( http://steve.bush.googlepages.com/aex ). Information about enrolling for a free online six-part series of Special Commercial Financing Reports or a free online seven-part Commercial Mortgage Course is available at all AEX Commercial Financing Group, LLC websites (including http://www.aexcommercialfinancing.com ). AEX Commercial Financing Group, LLC is based in Ohio and provides commercial real estate loans for purchases, construction and refinancing from $100,000 to $5,000,000 throughout the United States. AEX Commercial Financing Group, LLC also provides assistance in obtaining immediate working capital up to $300,000 using credit card receivables for retail stores, service businesses, bars and restaurants ( http://www.aexcfg.com ).

1031 Tax Deferred Exchanges

How would you like to defer your capital gains tax liability on the sale of your investment property? Well it can be done?legally. A little known tool to achieving a tax deferred transaction is known as the ?1031 Exchange?. This transaction is authorized by section 1031 of the IRS code and offers investors a reliable strategy for the deferment of capital gains when selling investment or business property.

The IRS code states, "no gain or loss is recognized if property held for productive use in a trade or business or for investment is exchanged solely for property of a like kind to be held either for productive use in a trade or business or for investment."

A successful 1031 exchange allows the investor to reinvest 100% of the equity from the sale of an investment or business property into the purchase of a like kind replacement property without recognizing any taxable gain.

As stated above the properties being exchanged must be of ?like kind?. Like-kind is defined as real property held for business use or investment. Any type of real property used for business use or investment will usually qualify. An investor may sell one property and acquire three or sell four and acquire one.

A 1031 exchange applies to all investment properties, large and small. It works the same way for an individual selling a single family home used as rental property as it would for a corporation selling a large shopping center.

The 1031 exchange is not an exchange as in a barter system. Instead, it is a typical sale and purchase that involves the same basic ingredients as any other sale or purchase transaction, except without the capital gains.

Although not complicated, you are required to use a professional to assist you. These are called Intermediary?s and they are individuals or companies that specialize in 1031 exchanges. The intermediary is responsible for keeping you aware of your time deadlines and ensures that you do everything to stay within IRS regulations. They also act as a middleman in both the sale and purchase transactions.

Here are the basic requirements of a 1031 exchange:

Both properties must be ?like kind?. Most types of investment or business use properties will qualify. Both properties must be held for investment or business use.

You must use a qualified Intermediary

There must be an agreement between the exchanger and the intermediary The exchanger must meet certain time limitations. They include a 45 day identification period in which you must identify a property you are intending to acquire and a 180 day period in which to close on a replacement property.

To locate a qualified Intermediary consult with your real estate agent or you can do a search on the internet for "1031 Intermediary". Of course this is a simplified overview of the 1031 tax deferred exchange plan. Please consult with your account and a qualified intermediary prior to initiating any formal action.

Adrian Skiles, GML Atlanta Mortgage Group, Inc

Adrian Skiles, GML has over 20 years experience in the mortgage and real estate industry. He is currently President/Broker of Florida Mortgage Group, Atlanta Mortgage Group and The Mortgage Group of North Carolina. On the web at http://www.efloridamortgagegroup.com/, http://www.atlantamortgagegroup.com/ and http://www.mortgages-northcarolina.com/.

The IRCS1031 Tax-Free Exchange - Calculating the Basis of Replacement Property

Introduction
This article provides a very brief introduction to two different methods and approaches for the computation of the basis of replacement property receive in an Internal Revenue Code Section 1031 (IRC?1031) exchange. It should be noted that these methods are relatively ?simple,? when compared to more complex IRC?1031 exchanges. This is because some may involve more than one classification of like-kind properties (e.g., real property versus personal property). The Internal Revenue Service (IRS) provides some broad instructions on the IRC?1031 exchange in its Publication 544 ? Sales and Other Dispositions of Assets. This publication is updated every year and is provided to the public, for free, by calling the IRS tax forms 1-800 telephone number or by downloading the publication from the Internet at www.irs.gov . IRC?1031 exchanges are reported on Form 8824, Like-Kind Exchanges.

Basic Terminology
The below Table summarizes the two different methods and approaches for the computation of the basis of replacement property. However, before illustrating the methods for the IRC?1031 exchange replacement property basis calculation, some basic terms must be defined, as follows:

Adjusted Basis Cost plus improvements less depreciation.

Relinquished That property ?sold? in an IRC?1031 like-kind exchange (e.g., relinquished property). Also known as ?phase I property,? property ?given up,? ?sale,? ?exchange,? or ?downleg.?

Replacement That property ?purchased? in an IRC?1031 like-kind exchange (e.g., replacement property). Also known as ?phase II property,? property ?received,? ?purchase,? ?target,? or ?upleg.?

Realized A classification of gain or loss that may or may not be ?realized? or have any tax impact. A realized gain (or loss) may or may not be recognized.

Recognized A classification of gain or loss that always, by definition, has a tax impact. A recognized gain (or loss) must, first, have been realized.

Capital Gain Sales price less adjusted basis, when sold at a profit. The amount to which capital gains taxes and tax rates are applied. For the 2004 and 2005 tax years, long-term capital gains are taxed at 5% (for taxpayers in 5% or 10% ordinary income tax rates or brackets), 15% (for taxpayers in 25%, 28%, 33% or 35% ordinary income rates or brackets), and 25% (for taxpayers subject to IRC?1250 recapture rules).

Capital Loss Sales price less adjusted basis, when sold at a loss.

Ordinary Income Those types, categories or classifications of income (e.g., dividends, interest and salary) to which ordinary income tax rates are applied. Ordinary income tax rates or brackets are higher than those applied to long-term capital gains to provide taxpayers with an economic incentive to invest, rather than speculate, long-term.

Tax-Deferred Tax ?savings? are always the result of tax-planning strategies designed to achieve tax-deferral or tax-deferred treatment. This is the objective of the IRC?1031 like-kind exchange. The tax is not eliminated, but is merely deferred or pushed into the future.

Deferred Gain A gain that is realized, but not recognized. This is the objective and/or motivation for the IRC?1031 exchange.

Deferred Loss A loss that is realized, but not recognized. Though not the objective, the IRC?1031 exchange is a double-edged sword. It results in partial or completely deferred gains, but also results in loss non-recognition. It is important for taxpayers to understand that the IRC?1031 exchange is not an election, but is ?mandatory? if all conditions are met. Therefore, it is not inconceivable that a taxpayer may ?accidentally? defer a loss.

Boot Cash boot (i.e., cash that is constructively received), mortgage boot (i.e., debt relief or liabilities relieved of), or other boot consists of non-like-kind property received or given in an IRC?1031 exchange, and is, therefore, potentially taxable.

The Table, below, uses the above terms to illustrate the two different methods and approaches for the computation of the Basis of REPLACEMENT Property received in an Internal Revenue Code Section 1031 (IRC?1031) exchange.

Table

Method 1

Original Cost, Basis or Purchase Price of RELINQUISHED Property
+ Boot given (Adjusted Basis)
+ Gain recognized
+ Liability assumed by the transferor (seller)
- Boot received (Fair Market Value)
- Loss recognized
- Liability assumed by the transferee (buyer)
= Basis of REPLACEMENT Property

Method 2

Fair Market Value of REPLACEMENT Property
- Deferred (Realized less Recognized) Gain

+ Deferred Loss
= Basis of REPLACEMENT Property

Summary
This very brief article provides you with an introduction to a tabular representation of the two separate methods and approaches useful in calculating the basis of replacement property in an IRC?1031 exchange. This represents the ?basics? of replacement property basis calculations, as more complex IRC?1031 exchanges may involve more than one classification of like-kind properties.

Feel free to publish or reproduce anywhere, as long as you provide a copy to and/or notify the author .

A.J. Cataldo, Ph.D., CPA, CMA

1031 Exchange for Commercial Real Estate

A 1031 exchange is defined under section 1031 of the Internal Revenue Code. This code states that if an asset, usually some kind of real estate like land or building, is sold and the proceeds of the sale are reinvested in a similar kind of asset, then no gain or loss is recognized, permitting the deferment of capital gains taxes. A 1031 exchange is also called Like Kind exchange.

If an investor buys a commercial property and sells the property profitably after a period of time, he has to pay capital gains tax on that amount. But if the investor invests the amount in another commercial real estate, then he is not required to pay any tax, in which case, he defers his taxes till a later date.

To qualify for a 1031 exchange, both the relinquished property and the replacement property must be held for investment or for productive use in some business. You cannot exchange a personal residence. Once the investor decides to pursue a 1031 exchange, a Qualified Intermediary (QI) has to handle the proceedings. Then the commercial property is put on the market and the offer to buy the property is accepted. Escrow for the sale is opened and a preliminary title report is produced. The QI sends the necessary exchange documents to escrow closer for signing at property closing. Within the initial 45 days after the close of escrow on the sale of the handover property, the investor has to identify a replacement property as per law. Within 180 days after the close of escrow on the sale of the relinquished commercial property, the investor closes on replacement property that was identified by them, thus completing the exchange.

The most difficult part of 1031 exchange is the identifying of replacement property by the investor within a period of 45 days following the sale of the commercial property. The Internal Revenue Code is very strict and no extensions are allowed. It is best to carefully think about your replacement property alternatives before you chose to sell your property.

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Satisfying A 1031 Exchange With The Balance Of Both - Real Estate & Energy

If you have been diligent in researching how to successfully complete a 1031 exchange employing a Tenant in Common (TIC) strategy, then you owe it to yourself to review the Private Oil & Gas Royalties that are available as a security to satisfy that same 1031 exchange.

If you equate Oil & Gas Royalty Investing with the extreme risk of drilling exploration or the unlimited liabilities involved with working interests then you would have over looked the sector providing ROYALTY INTERESTS from domestic oil fields that have been in steady stable production for decades. Energy investors have been enjoying the benefits of private royalty ownership and ?like-kind? exchanges for over 60 years. Court Rulings dating back to the 1940?s have affirmed the opportunity for investors to accomplish tax deferral by exchanging between brick-and?mortar and royalty interest; both of which are forms of real estate. A quick comparison reveals the following:

Private Royalties:

Risk Diversification - Yes ? multiple properties

Risk of Capital Call - No

Benefits from Rising Global Energy Prices - Yes

Independence from other Investors in the same Property - Yes

Secondary Markets - Yes

Low Correlation (when compared to interest rates, real estate markets and the economy) - Low

TIC?s:

Risk Diversification - No ? one property

Risk of Capital Call - Yes

Benefits from Rising Global Energy Prices - No

Independence from other Investors in the same Property - No

Secondary Markets - No

Low Correlation (when compared to interest rates, real estate markets and the economy) - High

So where does the balance come in?
Many investors are nearing retirement age and they seek above all capital preservation and a steady stream of income to sustain their quality of life. Diversifying holdings to include Oil & Gas Royalties can further spread risk geographically and among assets classes, as well as capitalizing on the potential for higher returns. Reducing risk and increasing return is a wealth strategy we all strive to achieve. At the same time you?ve captured a host of additional benefits a typical real estate TIC investment does not have ash shown in the table above.

How does the economy affect Oil & Gas Royalties?
Supply and demand will always be a key driver in determining the value of royalty programs. Much of the supply side is affected by a limited number of refineries already peaked in production. Reserves have also been a hot button for analysts, especially since they are typically an over stated quantity, not necessarily verified. On the demand side; we?ve been watching the increasing consumptions in India and China. Both the near-term conditions and long-term supply-demand projections make the economics of energy programs very appealing.

How does it all tie together?
Royalties are not a replacement for ?Bricks and Mortar? in the 1031 exchange market it is more a coexistent alternative. Each has a specific set of benefits and risks. They both can help the investor increase wealth and retain what they have earned. Having energy in a portfolio can bring a certain peace of mind; i.e. being able to spread out the risk in a commodity that has very low correlation to real estate markets, the national economy and interest rates. It may not be suitable for every investor. Suitability is crucial in determining your strategy of energy and real estate. If it is suitable, you now have real 1031 Exchange Alternatives.

Ricardo E. Jobin is Senior Vice President of 1031 Exchange Alternatives?. He is a retired Naval Officer (1995) and in 2000 attained an MBA in Strategic Management from Davenport University while serving as an executive board member for The Strategy Forum of Detroit. In 2001 Ricardo led a privately held corporation to rank 121st on the Inc. 500?s ?Fastest Growing Privately Held Companies in America?. Currently, Ricardo is pursuing studies to attain certification as a ?Wealth Strategist? and is a licensed securities agent and a registered representative of SIGMA Financial Corporation, member NASD & SIPC. For more information call 1-800-466-2003 or visit http://www.1031ea.com.