1031 DO’S & DON’TS

A 1031 tax-free exchange is a method to avoid paying Capital Gains Tax when you sell investment real estate, which can therefore help you generate even more income. The increased income is a direct result of deferring capital gains taxes on the sale of Apartment Buildings and other types of Income property. 1031 Tax-Free Exchanges are specific to real estate sales and do not apply other types of assets. In a County like Los Angeles where property values are already high, deferring capital gains taxes on real estate investments can make a huge difference in your annual cash flow.

There are, of course, many do’s and don’ts you must be aware of, which is why hiring a 1031 expert, like Mike Millea is a must. . Los Angeles 1031 exchange consultant Mike Millea is an expert on how to make this type of investment work for you. Following the do’s and don’ts outlined below, along with the assistance of a 1031 expert, should help ensure you and your family a larger real estate portfolio and more income.

Do’s of the Business

What kind of real estate do you currently own? A knowledgeable California 1031 exchange expert is key in properly setting up a 1031 exchange. Trading your property for something of more value can be a good move, but there are a lot of tax issues involved. Especially, if you are considering trading your Apartment Building into an Asset like a Single Tenant Triple Net Asset.

To sell your property in a 1031 tax free exchange and purchase other like-kind property, I.R.C. Section 1031 requires that the sale of one property be followed up with the purchase of another property within 180 days of the close of your escrow. In addition, you must identify the property you intend to purchase within 45 days of the close of your escrow. Mike Millea can help you design strategies to assist you in purchasing the best possible exchange property. 

45 days and 180 days may seem like a lot of time or maybe not enough time, depending on how you look at it. Still, it sometimes becomes necessary to begin the search for a “replacement” property during the period that you are selling your “downleg”. Which is why you want to hire a 1031 expert to initially list your property for sale.

Don’ts of a 1031 Exchange

Missed deadlines may completely destroy your chances of taking advantage of 1031 tax-free exchange benefits. The IRS does not allow Extensions past the 180 drop dead period, rescheduling, or do-overs when you want to use 1031 exchanges to accumulate real estate. If you’re even days late on closing on the sale or purchase, you may not be able to complete the paperwork in a timely manner – meaning you lose.

You also need to be aware of how much your “Upleg” must cost in order to avoid capital gains taxes. For example not replacing existing loan amounts on your Downleg, could be considered “income” and you will be taxed on those amounts. When you are trying to avoid paying taxes on real estate, that’s the last thing you want to face.

Utilize a 1031 Exchange Consultant in Los Angeles County

When considering the sale of Apartment Buildings and/or other income property, it is highly recommended that you first consult with Mike Millea, real estate broker. Mike Millea can help you strategically list your property for sale to make sure that you follow all of the rules.

Additionally, Mike Millea does make his services and experience available to Owners selling their homes as well, especially in Estate and Trust situations.