A good percentage of homes in any community are owned by out-of-towners. This is especially true in any college town in America, where properties are purchased by parents with kids attending school. Many of these homes are bought as long-term investments, but the initial purpose was to neutralize the expenses of paying off someone elses mortgage. It just makes sense to buy a property that can generate enough rent every month to possibly pay the monthly mortgage payment. It doesn’t take a rocket scientist to see the positives outweigh the negatives in owning investment properties.
What happens when investors decide they want to sell that steady source of income. Hopefully they have owned it long enough to have built up equity. The first professional to contact should be a realtor in the town where the investment is located to get an estimate of the value. This local real estate agent can evaluate the market and give the owner his professional opinion if this is the right time to sell or not. If the decision is to sell, the next call should be an accountant that can determine the tax ramifications and the best avenue to travel to alleviate the capital gains blow.You can bite the bullet and pay the taxes on the gain or you can avoid the capital gains with a 1031 Exchange. This is a viable way to keep all of your money from the sale of your investment. This is a solution to defer taxes from the sale. Many owners from out-of-town want to continue being investors, but just not far away investors. The 1031 Exchange works perfectly for those buyers that want to own a property that would be in the same town they reside in.
Sell Your Investment Property: It’s important to notify all parties concerned that you will be engaging in a 1031 Exchange in the sales contract before closing. You must have a Qualified Intermediary receive the net proceeds at close and hold the money until you close on the replacement property. If you close escrow without doing both of these things, you will not be able to do a 1031 Exchange.
Identify The Replacement Property: The replacement investment must be identified within 45 days following the sale of the relinquished property. You can identify up to three replacement properties. Not identifying multiple replacement properties is one of the most common reasons an Exchange blows up. The intention is to purchase just one of the investments, but keep the other two in the hip pocket, just in case the first one does not work out.
Obtaining The Property: You must close escrow on the replacement property within 180 days after the sale of the relinquished property. One of the most important stipulations for deferring your taxes with an Exchange is the replacement investment must be of equal or greater value than the relinquished property. It’s important to work with professionals that have the knowledge of the process from the realtor to the intermediary. Tres Equity in Davis, California meets the criteria and is an exceptional intermediary. Just a few years ago, 1031 Exchanges were a foreign term for investors, but today it is an idea solution for deferring those money-draining capital gains taxes. Please visit my website at www.JohnnyBrooksHomes.com for helpful tips on buying or selling a home and easy access to view local area homes for sale in Davis, California.