Alternatives To The 1031?
One more question. What tax shelters are available to the real estate investor who does many many transactions throughout the year and might not be eligable for a 1031 exchange?
One more question. What tax shelters are available to the real estate investor who does many many transactions throughout the year and might not be eligable for a 1031 exchange?
If it's 1-4 units and a primary residence for 2 years, there are no capital gains taxes.
Aside from that I don't know of any....but would love to hear about them if there are other options.
I have been thinking a little about the 1031 thing myself. A little off topic, but similar, so here are my thoughts. If you can only 1031 to "like " properties, for example, one investment to another, could you somehow, over time, work the grey area into your favor? For example - could you 1031 a 4 unit into a 2 unit into a sfr to another sfr that you just happn to use as a primary residence??? Maybe you could rent the last one for a while first to make the whole thing legit. What do you think? Z
Zach,
Investment property whether SFR, or multi-unit residential, or raw land, is still like-kind property for your 1031 exchange. Your primary residence is personal property, not investment property, and not eligible to participate in a 1031 exchange.
Highlife,
If you are a dealer to real estate, you don't have any tax deferral strategies like a 1031 exchange. Instead, you need to look into your corporate entity for reasonable and allowable business expenses to reduce your net taxable income.
Hibby76,
If it's 2-4 units and your primary residence for two years or more, there are no capital gains taxes on the unit used as your residence subject to the $250K limitation per taxpayer on the capital gains exclusion. All other units are taxed as investment property.
.
Zach,
You are on the right track. You can convert any rental or investment property to a personal residence, live there for at least 24 months, and then sell it and EXCLUDE up to $250K or $500K depending on whether you are single or married in capital gain taxes. You would still be taxed on the depreciation recapture, but the capital gains are now Tax Free. You should also know that a member of Congress has recently introduced legislation that - if passed - would significantly change this loop hole, but for now it is a great thing.
sharp CPAs and attys that are also CPAs have pointed me to various tax efficient structure
1031 is the only magic when it comes to buying and selling investment property.
As someone else noted, watch out for the dealer classification. If you are buying and selling you are not investing. 1031 is for investing.
As to the smart ideas...Mostly concerns the benefits business owner get by running business expenses through a company or other entity.
As noted in RDPD (not a direct quote).... People with a job earn money, pay taxes and live/spend the rest for lifestyle.
Business people with a company earn money, live/spend for a lifestyle and then pay taxes on what is left.
The key is that quite a few things that are legitimate business expenses can be paid for with pre-tax income rather then post-tax income. You need to follow the rules but when you do you will be better off then spending post-tax income for the same.
People who only ever have earned income through a job think this is magic. People who run businesses just assume it is normal and fair.
John
[addsig]