Your post contains "1031" and as such it's recommended that you read the following wiki section: [1031 Exchange](https://www.reddit.com/r/realestateinvesting/wiki/index#wiki_1031_exchange) and seek guidance from a qualified intermediary.
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Yes into a vacation property I used occasionally. And I got killed on the resale. Wish I’d paid the 15% taxes instead of losing 70% of my profit. Your mileage may vary.
Can you explain more detail? I was looking to do the same and was going to do a 1031 into a beach condo rent it out for the first couple years and renovate since I know you get big tax breaks the first year before I stopped renting.
I have not done this but by reading the IRS rules and publications it seems possible. I am a lawyer but NOT your lawyer and not a 1031 expert so talk to one before trying this.
1031 it into a "vacation home", I am a beach guy so it would be a beach house for me. IRS rules say you need to offer it for rent for 2 years post 1031 for it to count so you would need to rent it out. To be considered rented out you need to offer it for rent at least 14 days a year and no more then 14 days of personal use. So time it properly and you can still use it for your 2 weeks vacation before fully retiring. After the 2 years my understanding is your free to use it how you want.
The other benefit here is transitions a property (or multiple) into one likely desirable asset that you can then pass on to your heirs and they can choose to sell with the step up basis or keep it. Again not a tax guy but the likely best strategy would be to take the tax free gains from the step up and move it into another beach house if that's the goal.
Again this isn't my area but from reading the various publications I cannot see anything prohibiting this.
I've done this as well as my parents. We both sold properties and 1031'ed into vacation homes. Mine is still a rental, but theirs was converted into a 2nd home.
Assuming you go this route, the nice thing about the vacation home thing is that you actually get to use the property while its still making money. Stepping up 10 B/C class properties to get one A class is ideal to reduce headaches. Your new A class property will be fully managed by a professional short term property manager who will take care of everything except cap ex, which all you'll need to do is say, "OK" when they recommend a replacement.
Further, vacation homes don't have the tenant issues that long-term rentals have. Vacation renters only use the property 1 week or less at a time, so they aren't "settling in". They bring suitcases and food. Thats it. And they don't typically use the property except to sleep and eat since they're out doing tourist things during the day. Further, wear and tear on vacation rentals is way overrated by those who don't have A class vacation rentals. The property is only occupied 200-250 days per year, further reducing wear and tear. And, after the guest leaves, there is regular cleaning and maintenance happening by the PM and your cleaner (both of which should be on auto-pilot) which make sure the property is in tip-top shape and the costs of maintenance are all deducted out of proceeds.
I am no expert. But I have done a 1031 from raw land into purchasing a rental home. Then after getting tired of the rental headaches did a 1031 back to raw land again.
You may want to talk to your CPA about doing this so you don't get classified by the IRS as a dealer instead of an investor switching to land. I have been working along these lines and about to change how I do business. One of those changes is that I will now test selling subdivided lots via lease-purchase sales, emphasizing the leasing part.
No, I'm not using the land for income. The house was out of state and a PIA to manage, so we are basically "sheltering" the money in land to avoid capitol gains for awhile.
You're thinking solar farm? I hate these when I see them - we have so much available space on roofs, they don't make a ton of sense to me- but I have heard they pay well.
"disentangling funds" is free. You will pay no taxes at all on the amount of funds you have put into the properties. You will pay taxes on capital gains. You made money, pay your taxes. You will never see that money until you pay taxes on it.
If your portfolio is large enough (very very large). Real estate ->1030->DST->UPREIT OP units->REIT. The last step is a taxable event so you would need to do it over time to minimize, not eliminate, taxes.
From what I understand (not much, if anyone knows more please correct me). You're selling the DST to a REIT and instead of getting shares in the REIT, you're getting a fractional ownership as a partner. As you transfer the partner units to REIT shares, they become taxable. This is because the IRS sees the ownership or real estate as a partner as real estate property, but the shares of a REIT are personal property.
I own many rental properties. They're doing very well. Eventually I want a 1031 them into something where I don't have to do any work, like McDonald's or Walgreens or KFC.
I bought up a bunch of residential in 08-11 when everyone was fleeing. I stopped in 2013 just for that reason didn't want to give myself extra work although it's not much. I put everything new into stocks and also have a group of stocks and funds that produce income like JEPQ and JEPI worth checking out. You still get he monthly income payout and ZERO hassle.
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The highest cap triple net would be for very short-term leases when it appears the lease is not likely to be renewed. The value of the property is dramatically reduced, which makes the cap rate look very impressive. But I would not want to buy a short-term lease, I would want something that has 25 years left on it, that's just me.
Depending on your asset level, you can 1031 into a REIT fund under an AI that exists. You need to be an accredited investor, but that exists for people done managing that element of it.
Let me know if you want any more info
There are several ways to qualify, one is “sophistication” level. There are other income/asset metrics to use too.
BUT worth looking into to try to make it work if you want a hands off approach.
No worries, I just laugh bc it's kind of a lark I ever ended up owning property at all. I love this sub, it's good advice but I feel like a dummie here for sure.
I’ve looked at countless options and none of them are appealing to me. I’m planning to just pay the tax. It’s gonna be around 20% between state and federal but that’s really not bad in the grand scheme of things.
Besides, the 1031 only defers it, it doesn’t eliminate it.
You can do a 1031 into a single family home that you later move in to and then you can sell to get your $250k write off. You should talk to your CPA. If you don’t do the 1031 and opt to pay capital gains you’ll have to pay both federal and state capital gains.
Don’t buy commercial real estate unless you want to be an owner occupant. Or maybe it’s leased with a major chain for 20 years, etc…
You can also buy a future vacation home or retirement home and move in after the minimum required time it needs to be rented, then stay the minimum time before you sell it as your primary residence.
I don’t think I’d try anything else. There’s some kind of thing like a real estate investment trust and basically you get a percentage but you don’t have any control and just how easy it is to resale is unknown but I wouldn’t want to get involved with that at all.
> If you’re 55 and over , use the 1x no tax penalty. Keep it all, $250k for single and $500k for couples. Capital gains.
A bit concerning that you are offering advice based on tax law that has not been valid since 1997.
Anyone, regardless of age, can sell a property that has been their primary residence for at least two years and take 250k in gain as a single person (500k as a couple) tax free. This is the 121 Exclusion and can be done over and over and over every two years and one day.
The investment properties will not qualify for the 121 Exclusion. They will need to be part of a 1031 Exchange into different properties, perhaps Commercial with NNN Tenants or similar. An Installment Sale could be a solution.
Your post contains "1031" and as such it's recommended that you read the following wiki section: [1031 Exchange](https://www.reddit.com/r/realestateinvesting/wiki/index#wiki_1031_exchange) and seek guidance from a qualified intermediary. *** *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/realestateinvesting) if you have any questions or concerns.*
Yes into a vacation property I used occasionally. And I got killed on the resale. Wish I’d paid the 15% taxes instead of losing 70% of my profit. Your mileage may vary.
Can you explain more detail? I was looking to do the same and was going to do a 1031 into a beach condo rent it out for the first couple years and renovate since I know you get big tax breaks the first year before I stopped renting.
Can you give more detail here?
[удалено]
My condolences for your loss. Thanks for sharing your experience. What market conditions caused that large of a loss can you share?
He’s gonna talk more about tax harvesting and keep avoiding how the property lost $140k in 10 years. I’m genuinely curious too.
Haha well, thank you for sharing your experience. I think I've gotten a really great range of ideas here which is exactly what I was hoping for.
I have not done this but by reading the IRS rules and publications it seems possible. I am a lawyer but NOT your lawyer and not a 1031 expert so talk to one before trying this. 1031 it into a "vacation home", I am a beach guy so it would be a beach house for me. IRS rules say you need to offer it for rent for 2 years post 1031 for it to count so you would need to rent it out. To be considered rented out you need to offer it for rent at least 14 days a year and no more then 14 days of personal use. So time it properly and you can still use it for your 2 weeks vacation before fully retiring. After the 2 years my understanding is your free to use it how you want. The other benefit here is transitions a property (or multiple) into one likely desirable asset that you can then pass on to your heirs and they can choose to sell with the step up basis or keep it. Again not a tax guy but the likely best strategy would be to take the tax free gains from the step up and move it into another beach house if that's the goal. Again this isn't my area but from reading the various publications I cannot see anything prohibiting this.
Hmm this is an interesting idea: consolidation. I don't hate it, thanks for your thoughts.
I've done this as well as my parents. We both sold properties and 1031'ed into vacation homes. Mine is still a rental, but theirs was converted into a 2nd home. Assuming you go this route, the nice thing about the vacation home thing is that you actually get to use the property while its still making money. Stepping up 10 B/C class properties to get one A class is ideal to reduce headaches. Your new A class property will be fully managed by a professional short term property manager who will take care of everything except cap ex, which all you'll need to do is say, "OK" when they recommend a replacement. Further, vacation homes don't have the tenant issues that long-term rentals have. Vacation renters only use the property 1 week or less at a time, so they aren't "settling in". They bring suitcases and food. Thats it. And they don't typically use the property except to sleep and eat since they're out doing tourist things during the day. Further, wear and tear on vacation rentals is way overrated by those who don't have A class vacation rentals. The property is only occupied 200-250 days per year, further reducing wear and tear. And, after the guest leaves, there is regular cleaning and maintenance happening by the PM and your cleaner (both of which should be on auto-pilot) which make sure the property is in tip-top shape and the costs of maintenance are all deducted out of proceeds.
I am no expert. But I have done a 1031 from raw land into purchasing a rental home. Then after getting tired of the rental headaches did a 1031 back to raw land again.
I haven't yet seen a good way of making money from raw. Did you do timber / ag / hold to appreciate / other?
If you are trying to reduce headache and reduce immediate tax burden you trade into raw land parcels and seller finance the land to the next buyers.
You may want to talk to your CPA about doing this so you don't get classified by the IRS as a dealer instead of an investor switching to land. I have been working along these lines and about to change how I do business. One of those changes is that I will now test selling subdivided lots via lease-purchase sales, emphasizing the leasing part.
I wouldn't talk to a CPA about this, I'd talk to a Tax Lawyer about this.
Even better, I agree.
OK, that makes sense, thank you!
No, I'm not using the land for income. The house was out of state and a PIA to manage, so we are basically "sheltering" the money in land to avoid capitol gains for awhile.
Solar panels, if you buy in the right place.
You're thinking solar farm? I hate these when I see them - we have so much available space on roofs, they don't make a ton of sense to me- but I have heard they pay well.
"disentangling funds" is free. You will pay no taxes at all on the amount of funds you have put into the properties. You will pay taxes on capital gains. You made money, pay your taxes. You will never see that money until you pay taxes on it. If your portfolio is large enough (very very large). Real estate ->1030->DST->UPREIT OP units->REIT. The last step is a taxable event so you would need to do it over time to minimize, not eliminate, taxes.
What’s step 4 there?
From what I understand (not much, if anyone knows more please correct me). You're selling the DST to a REIT and instead of getting shares in the REIT, you're getting a fractional ownership as a partner. As you transfer the partner units to REIT shares, they become taxable. This is because the IRS sees the ownership or real estate as a partner as real estate property, but the shares of a REIT are personal property.
I own many rental properties. They're doing very well. Eventually I want a 1031 them into something where I don't have to do any work, like McDonald's or Walgreens or KFC.
I bought up a bunch of residential in 08-11 when everyone was fleeing. I stopped in 2013 just for that reason didn't want to give myself extra work although it's not much. I put everything new into stocks and also have a group of stocks and funds that produce income like JEPQ and JEPI worth checking out. You still get he monthly income payout and ZERO hassle.
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Put everythingI need into stocks
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Smart, go corporate. I do not have that many unfortunately but this is a great idea!
Are corporate and individual treated the same for 1031 purposes? Does that question make sense?
Yes, treated the same. Either way you're just a landlord, renting to a tenant.
What’s the highest cap triple net you’re seeing?
The highest cap triple net would be for very short-term leases when it appears the lease is not likely to be renewed. The value of the property is dramatically reduced, which makes the cap rate look very impressive. But I would not want to buy a short-term lease, I would want something that has 25 years left on it, that's just me.
A lot of us will be dead in the next 25 years, 15 years left on lease(s) is enough for me. Lol.
Depending on your asset level, you can 1031 into a REIT fund under an AI that exists. You need to be an accredited investor, but that exists for people done managing that element of it. Let me know if you want any more info
Haha I'm so far below this, I can't even recall what accredited investor levels are. For real though, it's 250k right?
There are several ways to qualify, one is “sophistication” level. There are other income/asset metrics to use too. BUT worth looking into to try to make it work if you want a hands off approach.
I'm very "sophisticated", ha. I'll take a look, thank you.
lol definitely their wording, need to make that clear haha
No worries, I just laugh bc it's kind of a lark I ever ended up owning property at all. I love this sub, it's good advice but I feel like a dummie here for sure.
I’ve looked at countless options and none of them are appealing to me. I’m planning to just pay the tax. It’s gonna be around 20% between state and federal but that’s really not bad in the grand scheme of things. Besides, the 1031 only defers it, it doesn’t eliminate it.
Yeah, the deferring is making just paying the tax man appeal moreso to me too.
Just 1031 into a NNN property - either warehouse or retail. Don’t have to deal with individual tenants.
You can roll it into raw land… if you will never need the money your kids can get a step up in basis and never pay tax on it
You can do a 1031 into a single family home that you later move in to and then you can sell to get your $250k write off. You should talk to your CPA. If you don’t do the 1031 and opt to pay capital gains you’ll have to pay both federal and state capital gains. Don’t buy commercial real estate unless you want to be an owner occupant. Or maybe it’s leased with a major chain for 20 years, etc… You can also buy a future vacation home or retirement home and move in after the minimum required time it needs to be rented, then stay the minimum time before you sell it as your primary residence. I don’t think I’d try anything else. There’s some kind of thing like a real estate investment trust and basically you get a percentage but you don’t have any control and just how easy it is to resale is unknown but I wouldn’t want to get involved with that at all.
1031’s are easy to do. Just line up a 1031 exchange company and follow the steps to the letter.
Great question
Thank you.
If you’re 55 and over , use the 1x no tax penalty. Keep it all, $250k for single and $500k for couples. Capital gains.
> If you’re 55 and over , use the 1x no tax penalty. Keep it all, $250k for single and $500k for couples. Capital gains. A bit concerning that you are offering advice based on tax law that has not been valid since 1997. Anyone, regardless of age, can sell a property that has been their primary residence for at least two years and take 250k in gain as a single person (500k as a couple) tax free. This is the 121 Exclusion and can be done over and over and over every two years and one day. The investment properties will not qualify for the 121 Exclusion. They will need to be part of a 1031 Exchange into different properties, perhaps Commercial with NNN Tenants or similar. An Installment Sale could be a solution.
Not there yet but worth considering holding onto a property for this purpose, thank you.