The Brilliance of 1031 in Estate Planning
We often talk about the immediate benefits of a 1031 Tax Deferred Exchange. 1031 is a great way to preserve equity, reposition assets and defer substantial amounts in taxes. What many do not realize is that 1031 Exchanges are a great estate planning tool.
Think about this. If you sold an investment property outright, between federal and state capital gains tax, depreciation recapture, and the possible 3.8% net investment income tax due, you may pay approximately 25-40% of your profits to the government that tax year. That payout would result in you having just the remaining funds left over to deposit into your savings account to be eventually passed on to your heirs.
Alternatively, with your sale structured as a 1031 Exchange, you would sell the property and use all of your profits to purchase new investment property. By using all proceeds to purchase replacement property of at least equal value to the property you sold, you defer 100% of the capital gains tax and other taxes otherwise due. That means you keep all of your equity working for you. And in fact the income generated would most likely be higher than any savings account earnings. Read more here.
Tax Straddling – Pay Taxes in 2020 or 2021?
When a 1031 Exchange is opened in the latter part of the year, a seasonal treat worth mentioning is “tax-straddling”. If that exchange is successfully completed, those taxpayers defer taxes to receive the benefits of the 1031 Exchange. However, if that exchange fails and is not completed, taxes will be due. The treat for those taxpayers is that they may still qualify for a “mini-tax deferral” (via tax straddling) where they can report and pay their taxes on their 2021 tax returns instead of immediately on their 2020 tax returns.
Here is the technical explanation of how tax straddling works. Let’s assume a taxpayer attempts an exchange with bona fide intent in the later part of 2020. Read more here.
NEW California Law SB 1079
“Redemption Right” for Trustee Sales of Residential Properties
Does or will this affect you or your clients’ investment property? On September 28, 2020, California Governor Newsom signed SB 1079 into law, granting a right of redemption or first refusal to purchase a foreclosed residential property to tenants, buyers intending to use the property as their residence, local governments intending to use the property as affordable housing and other eligible buyers are exempt. Read Snell & Wilmer’s full legal alert here:
National Cybersecurity Awareness Month
Fraud and cybercrime particularly relating to real estate transactions, continues to evolve and escalate. As part of National Cybersecurity Awareness Month, here are a few tips to help protect yourself and a few tips on 1031 Cybercrime.
- Enable Two-Factor Authentication where you can.
- Strengthen your passwords.
- Review your phone number and email address on your accounts to ensure all are current and accurate.
- Review your devices.
- Beware of phishing scams.
It’s our most favorite time of the year! And we have a week’s worth of scary secure 10-31 fun to celebrate. Go toIPX1031’s Facebook, Twitter, Instagram or Linked In to see our latest unveiling. #Happy1031 #ipx1031 #1031exchange #1031sharethescare
IPX1031 – Choose the Experts
IPX1031 focuses solely on 1031 Tax Deferred Like Kind Exchanges. With over 30 years as the national leader of exchange services, IPX1031 expertise, strength and security are unmatched. We pride ourselves on keeping our clients and their advisors current on tax issues pertaining to section 1031 Exchanges and applications. We aim to be your complete informational resource and to provide you with the knowledge, support, documentation and protection necessary to guide you through the Exchange process. For further guidance on how to fully maximize this powerful strategy, please contact IPX1031.