The best tip I can give a real estatate investor or someone who has inherited real estate is simple…learn about and use the laws defined in section 1031 of the Internal Revenue Code. The tax savings can be immense and the rules are simple and easy to follow. If you ever plan to sell one piece of real estate (that is not your primary residence) and purchase another property, then you must learn about a 1031 Exchange. Here is a simple guideline:
1. An investor decides to sell investment property and do a 1031 exchange. He contacts a qualified intermediary (QI).
2. The investment property is put on the market.
3. An offer to purchase the investment property is accepted.
4. Escrow for the sale is opened, and a preliminary title report is produced.
5. The QI sends required exchange documents to the escrow closer for signing at property closing.
6. Escrow closes.
7. Within the first 45 days after the close of escrow on the sale of the relinquished property, the investor identifies replacement property as required by law. This is known as the “Identification Period”.
8. Within 180 days after the close of escrow on the sale of the relinquished property, the investor closes on the replacement property that he identified. This is called the “Exchange Period”. This completes the exchange.
A Qualified Intermediary can answer the more complicated questions and facilitate the transaction keeping you in goid graces with the IRS to defer paying capital gains taxes (currently at 15%) plus your local state taxes.
Why pay the government when you can reinvest all the money? It is a win-win for the individual and for the government. You avoid paying taxes (deferred actually) and the government keeps the economy rolling forward with a new investment.
The second best tip for Real Estate Investors: Join a local real estate investors association. Here is an example of a good one near the Atlanta I-575 Corridor -
North Metro Real Estate Investors Association
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