Financially Speaking: Selling Real Estate? Do the New 1031 Exchange
Jason Glisczynski, CAS
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Certified Annuity Specialist
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Glisczynski & Associates, Inc.
1320 Okray Ave
Plover, WI 54467
715-341-8899 ext. 15
A common problem people run into when selling real estate is the taxes owed on the appreciation of the property. Now, we aren’t talking about you selling your home, as the current tax laws deem the gain on your home to be non-taxable provided you have lived there long enough. What I’m referring to is real estate that is not part of your primary residence, such as vacation property, or possibly business property; rentals or commercial property as an example.
A couple times a year I have a client that wants to get out of a particular piece of real estate, but is dreading the tax bill that is associated with the move. There is a portion of the tax code under § 1031, that permits for the gains on the sale of a property to be deferred, provided that the proceeds from the sale are invested in another piece of real estate. Herein lays the problem. Most people are selling the property because they don’t want to own property anymore, so selling a duplex on one end of town just to buy another one doesn’t get them out of the landlord situation.
What can you do? There are a couple of angles you can take, one of them being a TIC (tenant in common) arrangement, or using the Delaware Statutory Trust to reposition your cash proceeds from the sale of the property into another investment that uses real estate, therefor qualifying for the 1031 exchange, without you being a landlord. These arrangements can be lucrative and tax efficient, and because they are backed by the physical real estate the risk levels are low. This strategy can potentially work with farm land, vacation property, commercial property, and more. There are a lot of steps that must be followed correctly for this strategy to be effective, and requires your financial professional and your tax professional to work together to execute this properly. Always seek qualified professional advice when dealing with property exchanges.
This article was written by Jason Glisczynski and is not to be treated as investment advice. Investment Advisory Services offered through Brookstone Capital Management, an SEC Registered Investment Advisor.