Increase Your Wealth Using The Exchange 1031
The IRS for investment property allows a tax deferral exchange called a 1031 Exchange. It consists of realizing one property and buying another. Under the 1031 scheme, defers tax on value gains above the share of ownership in the exchange at a later date. When the price of a selling asset exceeds the expected purchase price, a capital gain occurs. In this case, the tax for individuals is subject to a minimum of 15%, and for corporations is 21%. For example, the owner of the residential exchange acquires and owns the target property in a separate establishment with one participant. To complete the reverse trade, EAT will acquire ownership of either the Foreclosed Property or the Replacement Property following a Qualified Housing Exchange Agreement (QEAA).
Reverse and Pure Exchange
The taxpayer may obtain replacement ownership before the transfer of the abandoned property, then a “Reverse” exchange occurs. There is also a “Pure” reverse exchange, in which case the ratepayer owns the alienated and replacement estate.
Rules for Definition and Duration
According to the identification rules, written proof of identity must be delivered to the other side of the exchange (EAT or a qualified intermediary). In accordance with the regulations of the three properties, the identified forfeited belongings must be sold and the replacement property transferred to the Exchanger to complete the exchange within 180 days from the time the Replacement Property is parked at EAT. In addition to this, you must adhere to the following:
The new property must be located in the United States;
180 calendar days to purchase one or more items from the “45-day list”;
The seller of the old domain must acquire title to the new property in the same legal name in which he owns the possessions;
The seller is obliged to buy a new property price at a price equal to or higher than the sale price of the old property;
The proceeds from the sale of the old possession, after paying the closing costs and obligations, must go to work with a qualified intermediary and in the Republic to purchase the estate.
The 45-day period cannot be extended even if the day falls on a Saturday. Pay your attention that Sunday is a legal holiday in the US. The exchange period must be strictly adhered to, ending 180 days after the transfer of the transmittable property or the filing date of the tax return for the taxable year in which the transfer of the transferable property occurred, whichever comes first. The 180-day term has the same properties as the 45-day term.
Triple-Net or NNN
A triple net lease is a contract for a property in which the tenant agrees to pay all costs associated with it, including property taxes, building insurance, and maintenance. These payments are in addition to the rent and utilities for which the landlord is responsible. Key points:
In a triple net lease, the tenant agrees to pay immovables taxes, building insurance, and maintenance along with rent and utilities;
NNN has a lower rent;
One-time net rent includes taxes along with the rent;
Double net commercial realty leases include taxes and property insurance in addition to the lease;
Triple grid rental real estate has become a popular investment vehicle for investors as it provides stable income with low risk.
This is the most common way to make a profit from investing in real estate.
Benefits of Investing in NNN
Thanks to the Triple Net Lease, investors include a long-term stable income with the possibility of an increase in the value of the underlying property. By investing in high-quality real estate without worrying about management operations, including vacancy factors, tenant improvement costs, or rental fees. Once you sell the main immovables, you can invest your capital in another tax-free triple net rental investment through a 1031 tax-deferred exchange. Investing in a NNN is often a real estate portfolio with three or more premium commercial properties fully leased to a single tenant with existing cash flow in place. Such realty may include office buildings, shopping malls, industrial parks, or stand-alone buildings run by banks, pharmacies, or restaurant chains. The typical lease term is 10 to 15 years, with built-in rent increases in the agreement. In the Triple Net Lease way, you must be accredited with a value of at least $1 million, accepting your primary residence or $200,000 of income. If you invest less, you can also use this method to invest in Real Estate Investment Trusts (REITs), which focus on real estate in their portfolios.
Benefits of Exchange 1031
By sticking to the benefits of the 1031 exchange method, you are laying the correct foundation for your investment:
A 1031 reverse exchange allows an investor to defer capital gains tax on the property purchased, even if the investor purchases the real estate in return first;
The exchange 1031 could ease the pressure associated with the 1031 trade as the investor is already pre-selecting the replacement property;
Use an investor to fix the purchase of real estate on time and in the price chosen by him;
The investor has control of the immovables at the closing price with a higher offer to sell the transferred property.
The main advantage lies in the sale of property without any immediate tax liability. The taxpayer retains the return on deferred tax dollars and at the same time exchanges assets.
Exchange 1031 for Foreign Investors
If you are not a US citizen, you may also qualify for 1031 handling of your assets. The US government allows a foreign seller to use this scheme. FIRPTA imposes an additional requirement that the person responsible for the transfer of old property from the foreign seller to the buyer/recipient must obtain from the foreign seller:
A withholding certificate issued by the Internal Revenue Service that authorizes a specific exchange and allows the recipient to not withhold tax;
Notice to the foreign seller certifying that the seller has applied for a certificate of retention.
If you are a foreign property owner, you should plan to apply for a certificate of retention immediately after the transfer of property has been completed. It is imperative that you consult with a knowledgeable, professional, qualified intermediary early in the sale process, as well as seek tax or financial advice from experienced advisors, to assist you through the process of closing the deal and filing your US tax return.