Timing Rules of a 1031 Exchange: How 1031 Exchanges Work

Timing Rules of a 1031 Exchange How 1031 Exchanges Work

A 1031 exchange is a fantastic real estate investing maneuver. Exchanges allow the deferment of capital gains tax, depreciation recapture tax, healthcare tax, and state tax on the sale of investment and business-use property. But, exactly how does a 1031 exchange work? These transactions are for business use or investment property only. And, there are critical timing rules of a 1031 exchange you must meet when identifying and closing on replacement property after your original property sells.

Timing rules for selling and buying (exchanging) property using 1031s

The 45-day rule starts when you close on your relinquished property:

  • You have 45 days from the closing on your relinquished property to identify up to three replacement properties and to send that information to your qualified intermediary.
  • If you only identify three properties, their purchase price can be any value. Note: You can identify more than three properties. Their combined value cannot exceed 200 percent of the relinquished property’s sale price. This rule only applies when you identify more than three properties for exchange.
  • If you are unable to identify replacement properties within 45 days, the exchange is over with no tax deferral.

Timing rules of a 1031 exchange infographic image

The 180-day rule also begins on the day your relinquished property sells:

  • You have 180 consecutive days from the day your relinquished property sells to close on one or more of the properties you identified for exchange.
  • On the 180th day, your exchange must be complete.
  • Failing to close on the property within this time frame voids your exchange.

Timing rules of a 1031 exchange are crucial, but there are other aspects that determine how 1031 exchanges work successfully:

When performing a 1031 exchange you must use a qualified intermediary (QI) such as Midland 1031. The use of a Certified Exchange Specialist® (CES®) is highly recommended. These professionals ensure your transactions comply with the IRS and fall within the timing rules of 1031 exchanges.

Midland is an experienced QI. We have two CES® team members that ensure your exchange is completed seamlessly and satisfactorily. This process allows you to concentrate on and to continue building investment income on real estate assets.

To learn more or to start your exchange, contact Midland 1031 at 239-333-1031 or visit our website to discover more about how 1031 exchanges work today.

Find detailed information on exchange qualifications in this IRS publication.

For information regarding real estate investments within an IRA or other retirement account, contact Midland Trust at 239-333-1032 or visit www.midlandtrust.com.

Editor’s note: This blog was originally published in May 2016 and has been updated for accuracy and comprehensiveness.

Earn Tax-Free Income on Rental Property in Your IRA

Earn Tax-Free Income on Rental Property In Your IRA

The savvy individual knows a thing or two about how IRAs provide tax-advantaged savings for retirement. You may even know that self-directed IRAs allow account owners to invest in alternative assets. Self-direction gives plan owners control over their retirement funds and investing decisions.

Account owners can invest in assets that reach far beyond the traditional stock or bond. Alternative investments, such as real estate, are the most popular holdings in self-directed accounts. Real estate presents unique opportunities, including the ability to invest in rental property in your IRA to build retirement wealth.

Not only can individuals invest in rentals, realtors can use their expertise to build wealth for retirement, too. Self-direction is about investing in what you know best, after all. Realtors have an advantage here, with the potential to build themselves a tidy nest egg to secure their financial futures.

Why invest in rental property in your IRA?

Last year, Forbes published an article about rental property investments stating:

“Our Top 20 is a list of local markets where the odds of making a good investment in rental property are in your favor right now – and, equally important, where the odds of making a bad investment are low – because the number of renters is growing fast. So fast that brokers and builders aren’t yet aware of how much future demand there will be.”

Rentals are a hot topic today. Even so, many people don’t know they can invest in these assets with a self-directed IRA.

Here’s how it works: Your IRA purchases and owns the property. As the property owner, your IRA directly receives the monthly rental payments. The IRA also pays for all expenses. A third party performs any maintenance and repairs. Why? As the owner of the IRA, you cannot receive income for repairs. You cannot perform these tasks for free, either. That’s called “sweat equity” and is prohibited by the IRS.

Rentals present the potential to build retirement savings over time in another way. When the property appreciates, your IRA can sell it. The sale earnings grow tax-deferred in your self-directed plan.

It’s hard to beat the tax advantages because time is on your side. Consider this: The rental income you earn remains in the IRA. It grows on a tax-sheltered basis, building additional investing capital.

Types of rental property you can invest in:

  • Single and multi-family homes
  • Commercial property
  • Townhomes and condominiums
  • Offshore vacation property
  • and more…

The benefits of investing in rental property in your IRA are numerous. However, as any investor knows, real estate purchases are not without risk. As with any investing decision, seek knowledge in the assets you choose. As with any retirement plan, IRS rules must be followed. Due diligence is necessary to ensure the investment is viable with the potential to produce rental income. more you know, the better your chances of growing the wealth you desire.

Contact Midland for information about investing in real estate and the tax-saving advantages you can enjoy with a self-directed retirement plan.

What Is a Real Estate IRA?

What Is a Real Estate IRA

Have you ever heard about real estate investing with IRAs? Did you know you can use retirement funds to invest houses, condos, and commercial property to build income?

Self-directed IRAs provide owners the Freedom to Invest™ in assets they believe will produce desired returns in their accounts. These plans are not restricted to traditional Wall Street assets, such as stocks, mutual funds, or bonds. Instead of relying on brokers or custodians, plan owners choose their own investments. And, they can choose those assets from an incredibly large class of alternatives. Real estate is the most popular alternative asset because of the diversity the industry presents. Hence the name “real estate IRA.”

Real estate IRAs allow individuals to use their own knowledge and expertise when making investment choices.

People familiar with tax liens and deeds, residential or rental property feel comfortable investing in those assets. Renovations and commercial property are other options in addition to foreign property, improved and unimproved land. There are many other real estate investments permissible in IRAs. So, if you want to learn about other possibilities—you certainly can. Once you feel comfortable, you can begin adding additional assets to your plan.

Realtors can use their experience to find and invest in property to build income in their own retirement accounts.

They can also help connect private lenders to clients seeking mortgages outside the traditional institutions. Private lending using retirement funds presents great potential in earning tax-sheltered returns in an IRA. Realtors who understand how clients can use retirement funds to invest become an important resource to clients (and potential clients) who are investors.

This short video provides excellent information on how a real estate investing with IRAs can help you reach your retirement savings goals.

Contact Midland and discover how you, too, can start earning income using a self-directed real estate IRA retirement plan.

Top 10 Real Estate IRA Questions Answered

Top 10 Real Estate IRA Questions Answered

Midland receives the same questions about investing in real estate with retirement funds. In this article, we answer our most-asked real estate IRA questions.

The goal of self-direction is to invest in what you know best. If you have experience with rentals or rehabbing, for example, you may benefit from investing in these assets using retirement funds.

Realtors who understand investing with retirement funds can better assist existing clients. They can cultivate a new client base by explaining how to use IRA funds to invest. Realtors can also put their knowledge to work by using real estate IRAs to achieve their own retirement planning goals.

Knowing the process and rules of a real estate IRA is critical.

Answers to the Top 10 Real Estate IRA Questions

  1. Yes. You can invest in real estate using your retirement plan. These plans are called real estate IRAs.
  2. Yes. That means you can use that cash you have been saving for years in your retirement funds to buy real estate.
  3. Yes. We know your broker/CPA/attorney has not said anything about this to you. They have probably never heard of a self-directed retirement plan. That is because mainstream retirement plan custodians limit you to what they sell. These limitations usually include traditional stocks and bonds.
  4. Yes. Midland allows clients to use alternative assets (like real estate) to build wealth. We are not your typical custodian. We do not sell investments. Midland allows you the freedom to invest in what you know best.
  5. Yes. It is legal. You can thank the IRS for that. Their website states: “IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.”
  6. Yes. All income and expenses related to the asset flow into and out of your retirement account.
  7. No. Purchasing real estate in an IRA is not a taxable event. Investments in a retirement account are tax-sheltered like stocks and bonds.
  8. No. You cannot sell a property you already own to your retirement fund. You cannot personally buy or rent real estate that your retirement fund owns. Disqualified persons cannot buy or rent property owned by your retirement fund either. You and disqualified persons cannot transact with your IRA. However, the IRS has no problem with your real estate IRA renting/buying/selling to non-linear relatives (brothers, sisters, aunts, uncles, cousins, etc.).
  9. No. There is no limit to how much profit you can make from real estate deals in your retirement fund. The IRS only limits how much money you can contribute to your retirement fund each year.
  10. Yes. Self-directing a retirement plan easy to do. To get started, fill out our application online and get started using a real estate IRA today.

The goal of our clients is to diversify at least a part of their retirement portfolios. Self directed diversification can help protect your wealth if the stock market dips.

If you have more questions or want to take a more active role in a successful retirement, contact Midland.

What Is a Self-Directed IRA?

What Is a Self-Directed IRA

Most people understand traditional and Roth IRAs, 401(k)s, and even SEP and SIMPLE plans for small business owners. But, one question we hear frequently is, “What is a self-directed IRA?”

The answer is easy: It is a powerful tool individuals use to reach their retirement planning goals. Self-directed plan owners control their funds and the type of investments their plans purchase. So, If that describes you, it’s also time that you learn about self-directed IRAs.

Why should you learn about a Self-Directed IRA?

Self-directed plan and a retirement plan housed with a bank or a typical custodian differ in two ways. First of all, self-directed plan owners invest in alternative assets rather than stocks, bonds, and mutual funds. Additionally, plan owners choose their own investments; they do not rely on a third-party to do so. These differences are especially relevant to those who want control of their investing funds and decisions.

Alternative assets (like real estate or hedge funds) grow income in the plan just as any traditional asset does on a tax-sheltered basis. And, the account owners choose investments based on their own knowledge and experience. Alternative assets have the potential to earn better returns in a shorter length of time than traditional assets. Individuals choose rentals, land, private equity, gold, private lending options, and much more to achieve their goals.

Midland IRA is a self-directed retirement plan administrator serving clients across the nation. Our clients have the Freedom to Invest™ in what they know best. Our clients use many alternative assets to earn tax-sheltered income. To retire successfully, diversity is key. Understand your options. Make your own decisions. Open a self-directed IRA with Midland today.

1031 Exchange Process: Build Real Estate Investing Capital

1031 Tax-Deferred Exchanges Can Help Build Real Estate Investing Capital

The 1031 Exchange Process

Exchanges allow the deferment of capital gains taxes on the sale of property. This strategy can help build real estate investing capital. The taxes saved provide the accumulation of funds to acquire new property. As a result, the 1031 exchange process is a real estate investor’s dream.

There is no limit to the number of exchanges investors can perform. Additionally, almost all property is permissible in 1031 exchanges. As long as the real estate’s purpose is for business or investment use only.

Watch this short video to learn more about how exchanges can help you defer huge taxes on your property assets.

1031 Tax-Deferred Exchanges Video Transcript

Wouldn’t it be nice to not pay taxes on the sale of your investment property? A 1031 exchange allows you to sell an investment or business-use property for another of equal or greater value. This strategy defers capital gains, depreciation recapture, state, and healthcare taxes. As long as you trade up in value, you’ll defer all taxes associated with the sale of your investment property.

All investment real estate qualifies. Single and multi-family homes, commercial real estate, land, and more qualify!

An exchange allows the investor to increase cash flow, acquire property with greater income potential, diversify or consolidate property, and move markets.

Stop paying taxes! Begin your 1031 exchange today by calling Midland IRA & 1031 at (239) 333-1031. Midland 1031 is a qualified intermediary. We have facilitated thousands of 1031 exchanges for clients throughout the United States. Learn more by visiting the Midland 1031 website.

Commit to learning how you can defer taxes and contact us today to learn more.