Monday, December 27, 2010

1031 Exchange Planning After the 2011 Tax Relief Act

President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2011 (the "Act") into law. This new act has some very favorable income tax planning provisions that benefit owners of real estate assets, and especially for those taxpayers who have always taken advantage of 1031 Exchanges.

The Act extends many areas of former President George W. Bush's tax cuts, including lower capital gain tax rates, tax free exemptions for estate and gift taxes, as well as preserving the step-up in cost basis received by heirs at the date of death.

Capital Gain Tax Rates Extended

The current low capital gain tax rates were extended for two (2) more calendar tax years. This means that most of us will be paying capital gain taxes at the maximum capital gain tax rate of just fifteen percent (15%) through December 31, 2012, unless of course you are deferring your capital gain taxes by structuring a 1031 Tax Deferred Exchange (see Section 1031 of the Internal Revenue Code). The ability to defer capital gain taxes into the future through a tax-deferred exchange such as the 1031 Exchange is often the best strategy because it keeps your money working for you.

Depreciation Recapture and State Taxes

Don't forget to include depreciation recapture taxes and any state income or capital gain taxes in the tax planning computation or estimate. The combined Federal and state taxes are still high on a combined basis for many states, so tax planning is still extremely important.

Estate and Gift Tax Exclusion

The estate and gift tax exclusion will be set at $5 million per taxpayer with any amount in excess of $5 million taxed at 35%. This is certainly more favorable for taxpayers than what many advisors and experts had expected to see out of this lame duck session of Congress.

Step-Up In Cost Basis

Taxpayers often ask what is the best way to plan for the transfer of their wealth at death. The most appropriate and suitable answer is generally to continue to defer their taxes throughout their life time by using tax deferred and tax exclusion strategies such as the 1031 Exchange. This allows the taxpayer's money to keep working, building and growing for him or her.

However, by far, the biggest benefit here is the ability to leave assets to heirs at a step-up in cost basis. This means that essentially the capital gain taxes go away when property is inherited by others. The person that inherits the property gets their new cost basis stepped up to equal the value of the fair market value of the property at the date of death.

Taxpayers can continue to defer capital gain taxes over the years, including depreciation recapture taxes, by structuring 1031 Tax Deferred Exchanges, and then leave the real estate or personal property to their heirs without incurring any capital gain taxes or depreciation recapture taxes. The heirs are only responsible for any capital gain tax or depreciation recapture tax that occurs or is generated after the date of death while they own the asset.

Beyond 2012

Planning for tax years beginning on or after January 1, 2013 is more problematic since these extensions end as of December 31, 2012, but at least we have some certainty for a couple of years.

Monday, December 20, 2010

Capital Gain Tax to Remain at 15%

The U.S. House of Representatives and the U.S. Senate have approved the package of extensions of tax rates and unemployment benefits, sending the legislation to the President for his signature (H.R. 4583, 277-148).

The bill as passed sets the estate tax exemption at $5 million and the rate at 35%, and extends all of the Bush era tax cuts for two years and reduces the Social Security payroll tax from 6.2% to 4.2% for 2011. 

Sunday, October 03, 2010

PUBLISH & PROSPER: Become A Published Author

There are few things that bring a real estate professional more credibility than becoming the author of a book. But most of us don't have enough time to write one!

This webinar discusses the benefits of authorship, of becoming published as a real estate professional and the concept of a "contributory book" - a book written from the contributions of several real estate professionals from within their area of expertise.

Dan Stuenzi, Publisher from Collaborative Press, LLC will also discuss a new contributory project for real estate brokers and agents, mortgage professionals, appraisers, 1031 exchange Qualified Intermediaries, and other professionals within the real estate industry.

Learn how you can become a published author. Click here for a free webinar.

Sunday, September 12, 2010

Save Your Deals With a Reverse 1031 Exchange

You are invited to the next webinar in The Exeter Edge™ Webinar Series entitled:

Save Your Deals
With a
Reverse 1031 Exchange

Monday, September 13th, 2010, at 10:00 AM PDT.

Click Here For More Information and/or to REGISTER.  There is no cost to register, and you can invite colleagues, friends, and guests, too.  Click here to view other upcoming webinars in The Exeter Edge™ Webinar Series.

Wednesday, September 08, 2010

William L. Exeter Appointed Technical Editor for Real Estate Wealth Book

Book publisher Collaborative Press has announced the appointment of William Exeter as lead technical editor for an upcoming title for real estate investors: Real Estate Wealth: Investing in Turbulent Times.

Collaborative Press publishes books for the public that are co-authored by professionals from a wide variety of disciplines, and from different parts of the country. That methodology produces consumer books that contain the best thoughts and practices of the top experts.

Real Estate Wealth: Investing in Turbulent Times will be written by selected real estate agents and brokers, mortgage professionals, appraisers, home inspectors, 1031 Exchange facilitators, attorneys, financial advisors, insurance professionals, and CPAs. Contributing Authors are chosen by an application process, based on years of experience, education and training, and other professional credentials. 

William "Bill" L. Exeter was selected as the lead editor for this upcoming work because of his broad experience and expertise in the field of real estate investing. He is the President and Chief Executive Officer for Exeter 1031 Exchange Services, LLC; Exeter Fiduciary Services, LLC; Exeter IRA Services, LLC; and their affiliate companies. Mr. Exeter is based in the company's national corporate headquarters located in San Diego, California.

Mr. Exeter has been in the fiduciary services industry since 1980. He began specializing in real estate tax strategies in 1986 with a specialty emphasis in 1031 and 1033 Exchanges as well as Self-Directed IRAs.

His area of expertise also includes specialized trust and fiduciary services for the real estate industry, including Title Holding Trusts or Land Trusts, dispute settlement trust accounts, dispute resolution trust accounts, divorce or dissolution trust accounts, cash holding escrows or holding trust accounts, and environmental hazardous waste clean-up fund trust accounts.

Mr. Exeter has written and lectured extensively on 1031 and 1033 Exchange transactions, tenant-in-common (TIC) investment properties, Self-Directed IRAs, Deferred Sales Trusts™ and Title Holding Trusts or Land Trusts.

In addition, Mr. Exeter is the owner and host of The Exeter Group Real Estate Talk Radio Show™, is a frequent guest expert on "The Financial Advisors — Money Talk Radio Show” on San Diego News Radio AM 600 KOGO and on the "Inside Business Radio Show" on Business Talk Radio AM 1000 KCEO San Diego.

Mr. Exeter also serves as an industry consultant and advisor and as an expert witness on 1031 exchange related litigation.

Friday, September 03, 2010

Donating Real Estate? Consider Doing A Cost Segregation Study First!

Generally, investors will consider making a charitable contribution or donation of real estate for tax purposes.  There may be other objectives, but tax planning is often the primary motivation.

So, if you are going to make a charitable donation of real estate to a qualifying charity of your choice, why not take full advantage of the tax planning opportunities available to you? 

Cost Segregation Study

You should give serious thought to doing a Cost Segregation Study first, which would allow you to accelerate your depreciation deductions on the personal property components associated with the commercial real estate, and then you can complete the charitable contribution and receive your tax deduction for the donation.   

It's the best of both worlds.  You speed up depreciation write offs for the personal property and take a catch up tax deduction in the current year for the prior year depreciation that you did not take, and then you also receive your charitable contribution deduction either through an outright contribution or through a charitable remainder trust. 

The longer you have owned the property, the more you can benefit from a Cost Segregation Study prior to making a charitable contribution.  I would be happy to discuss this use of the Cost Segregation tax planning strategy with you, just call.

Saturday, July 10, 2010

What Is Taxable Boot in a 1031 Tax Deferred Exchange?

The term taxable boot refers to any non-like kind property received in a 1031 Tax Deferred Exchange.  For example, if you are selling real estate that was held for rental, investment or use in a business, then non-like kind property would be any type of property that is not real estate held for rental, investment or use in a business.

The term cash boot refers to the receipt of cash.  In other words, you end up with cash left over after you have completed the acquisition of your replacement properties in your 1031 Tax Deferred Exchange. 

The term mortgage boot (also called debt relief or mortgage relief) means that the taxpayer has traded down in the value of replacement properties acquired and therefore has less debt on the replacement properties than what he or she had on the relinquished properties even though he or she reinvested all of his or her cash equity.

Sunday, July 04, 2010

Happy 4th of July!

The staff at The Exeter Learning Institute wishes you and your family a very happy and safe 4th of July holiday.

Friday, June 25, 2010

Last Minute 1031 Exchange Closing Tip

I was speaking to one of my clients today who is trying to close on the sale of her relinquished property before the end of the month - June 30, 2010.  I realized as we were discussing her 1031 Exchange transaction that she really did not have any specific reason for closing by the end of the month. 

I suggested that she wait and close on the sale of her relinquished property and start her 1031 Exchange after June 30, 2010 instead of before month end.  The reason is simple.  You never know whether you will be able to complete your 1031 Exchange.  The sale of your relinquished property and the start of your 1031 Exchange triggers your capital gain tax.  Your 1031 Exchange will fail if you can not acquire replacement property with the 180 calendar day exchange period, and the failed 1031 Exchange becomes a taxable transaction.

However, your taxable gain can be pushed into the following tax year if you do not have the right to your 1031 Exchange funds until after your 180 calendar period has passed and the 181st day lands in the following tax year.  This is the reason that I recommended that she wait to close on the sale of her relinquished property until July 2010.  Closing after month end would push her 180th day into 2011 and would at least allow her to defer her capital gain into 2011 even if her 1031 Exchange fails.  This is a little known tax planning tool that is relatively easy to implement unless you absolutely need to close by month end for other reasons. 

Thursday, June 24, 2010

Transaction Closing Saved by the Cash Holding Escrow

The parties involved in the purchase, sale and refinance of real estate are often confronted with obstacles that can hold up the closing of the real property transaction. One solution is to have the parties agree to have cash held back at the transaction closing in a Cash Holding Escrow or Cash Holdback Escrow pending the resolution of the problem. Cash or closing proceeds can be set aside and held by an independent third party or escrow agent until the pending items are completed or conditions have been met or resolved.

The Cash Holding Escrow or Cash Holdback Escrow is a very simple escrow solution to an often complicated problem. These problems often arise at the last minute and can delay, complicate or even result in the cancellation of some already fragile real estate transactions.

Putting a Cash Holdback Escrow or Cash Holding Escrow in place at the last minute can save these transactions. But, many independent escrow companies, title insurance companies, trust companies, banks and other financial institutions will often decline to administer these Cash Holding Escrows or Cash Holdback Escrow account transactions because they do not have adequate systems to track the various requirements for the Cash Holdback.

Friday, June 18, 2010

Emissions Credits are Classified as Like Kind Property for 1031 Exchange Purposes

Like kind property as defined for tax-deferred exchange treatment under Section 1031 of the Internal Revenue Code is not always an easy call to make and often involves grays areas until the IRS clears up the issue for us. 

This is the case for Nitrogen Oxide Emissions (NOx) and Volatile Organic Compounds (VOC).  The question was whether they were like kind to each other for 1031 Exchange purposes.

The Internal Revenue Service issued Private Letter Ruling (PLR) 201024036 today, which concludes that the underlying nature and character of the rights conferred by emissions credits for nitrogen oxide emissions (NOx) are like-kind to the rights conferred by emissions credits for volatile organic compounds (VOC). 

The Internal Revenue Service concluded in PLR 201024036 that the underlying nature and character of the emission credits were of like-kind property to each other and therefore qualified for tax-deferred exchange treatment under Section 1031 of the Internal Revenue Code.

Tuesday, June 08, 2010

The National Debt, How It Affects You

The national debt has become a central focus of US domestic policy discourse. Considering the amount of fiscal stimulus that has been injected into the US economy in recent years, it is no wonder people are waking up to the subject. It is becoming very relevant, very personal.

To understand this issue we have to recognize that the National Debt and budget deficits have everything to do with each other.

Simply stated, a budget deficit is created when the government spends more than in takes in revenue. In other words, the larger the budget deficit is - the larger the national debt will be. Running consecutive budget deficits will grow the national debt.

In this scenario the government, since it creates no goods or services, has to look to others for the money. It has very few options: 1) it can tax its citizens; 2) flood the economy with more Fiat, printed currency, which is backed by little more than its good will or; 3) borrow money from other nations such as China.

The issuance of debt is typically accepted by the public, so long as the proceeds are used to stimulate the growth of the economy in a manner that will lead to long-term prosperity.

The National Debt affects everyone

First, as the national debt increases so does the likelihood of default. In order to attract investors the Treasury Department will have to raise the yield on newly treasury securities. This will reduce the revenue available to spend on other government services in order to support the growing debt service.

Second, businesses operating in the US will be viewed as riskier, thus the higher yield will be required on their newly issued bonds. This in turn will push up prices in order to meet higher debt service and eventually, the consumer will be paying more for the same goods and services ... this will fuel inflation.

Third, as the yield on treasury securities increases so will the cost of home mortgages, which are directly tied to short-term interest rates, set by the Federal Reserve. Given the interrelationship, an increase in interest rates will push home prices down ... this spells extended recession and slow housing recovery.

Fourth, since the yield on US Treasury securities is currently considered a risk-free rate of return any bump in the yield will make it harder and more expensive for the private business sector to borrow and raise capital. Historically, this environment grows the size of government while shrinking the size of the private sector.

Finally, the risk of a country defaulting on its debt service increases the risk of its losing it social, economic and political power, thus turning a national debt dilemma into a national security issue.

The US National Debt currently approaches $40,000 per capita and is rapidly rising.

Monday, June 07, 2010

Deals That Won’t Wait: Investment Strategy for Today’s Real Estate Market

Today's rapidly evolving real estate market offers a multitude of investment opportunities for the real estate investor. Opportunities can be found in fire sales, short sales, foreclosures (Trustee sales) or deeds-in-lieu of foreclosure.

But, it’s all in the timing. The real estate investor must move quickly to close on the really good (i.e. well priced) real estate deals. Cash is certainly king in today’s market place. For real estate investors that can pay all cash and close quickly the deal is a huge win. For those who can’t pay cash or move quickly it’s lost opportunity. Or is it?

Many times real estate investors want to sell some of their existing property to pay for their new acquisitions and they want to defer their capital gain taxes via a 1031 Tax Deferred Exchange transaction…but, the deal won’t wait. The well priced, and therefore really good real estate deals, will not last while the investor get’s his or her current properties listed, sold and closed through a 1031 Exchange transaction.

The challenge is finding a way to structure the acquisition so that investors can acquire the new investment property immediately, and then worry about selling their existing rental properties after they close on the deal.

A Reverse 1031 Exchange strategy is the answer. The real estate investor doesn’t have to wait to sell his or her existing rental property. They can close on the new acquisition first, and then market their existing properties following the acquisition.

Although the Reverse 1031 Exchange strategy is more complicated and costly, it provides a solution for a rapidly evolving real estate market so that the more astute investors can take advantage of opportunities as they come along, according to William L. Exeter, co-founder of The Center for Wealth & Legacy™ and founder of The 1031 Exchange Institute™.

Monday, May 24, 2010

"In What Year Will The Economic Recovery Really Begin?

Confused About What To Do Next in Real Estate?
The "Great Recession" has left many of us scratching our heads and wondering what's next? Where do we go from here? How should we reposition our real estate portfolio going forward now that we are emerging from the recession? Should I hang tight, or make an investment move now?

We realize these are confusing times, which is why Exeter 1031 Exchange Services, LLC is hosting this webinar for you. Our goal is to provide you with up-to-date real estate market data and information so that you can make better informed investment decisions.

"In What Year Will The Economic Recovery Begin?"
This exciting webinar will provide an update on the real estate market on a local, state and national point of view as well as an overview of certain demographic trends that will affect investment property. It will help you answer the above questions, and help you decide how to position your own investment portfolio as we move forward beyond the recession.

Hosted by:
William L. Exeter
President and Chief Executive Officer
Exeter 1031 Exchange Services, LLC

Presented by:
Alan N. Nevin
Director of Economic Research
MarketPointe Realty Advisors

Date and Time
Tuesday, May 24, 2010
10:00 AM — 11:00 AM PDT Webinar
Please login five (5) minutes early

Go To Webinar Registrations Are Required
Click here to register for this webinar about demographic trends in California.

Saturday, May 01, 2010

"In What Year Will The Economic Recovery Begin?"

Has The Recovery Really Started?

The media is full of comments and opinions today about the global economic recession and/or the recovery.  When is the recovery coming?  Is the recovery here; I mean really here? 

These questions about the status of the economic recovery lead to many more questions about what each of us should or should not do in order to take full advantage of the economic recovery as it unfolds before our eyes.  How should we reposition ourselves for the job market, or our securities portfolio or our real estate portfolio?  What should we do differently, if anything, from what we have been doing?

How Will The Recovery Affect Us Individually?

The recovery will affect each and every one of us differently.  It will depend on what industry we are in, what jobs we have, what kind of investments we have made, and what kind of real property we own, etc.  The actions that each of us should take will vary depending on our individual circumstances.

Real Estate Hit Particularly Hard

Those of us in the real estate industry have been hit particularly hard.  So, the biggest question for each of us individually is really when and how will the recovery reach us and how will it ultimately affect us, especially those of us in the real estate world.

Alan NevinTo help us answer these questions on an individual basis, we desperately need current, reliable and accurate information to help us make better informed and educated investment decisions when trying to decide what we should do going forward.

Alan Nevin

So, we invited Alan Nevin, Director of Research with Marketpointe Realty Advisors, and co-founder of The Center for Wealth & Legacy™, to discuss these economic issues and questions with us on a Webinar entitled The Reality of the California Real Estate Market: In What Year Will The Economic Recovery Begin?"
Alan Nevin is an economist and a demographer who will address the various economic and real estate industry trends from a local (San Diego), state (California) and national (U.S.) perspective.  He will also share some comments regarding the global economy and how the U.S. fits into and/or will be affected by the bigger global economic picture.

Webinar Sponsor by Exeter 1031 Exchange Services, LLC

Exeter 1031 Exchange Services, LLC understands that investors need information in order to make tough investment decisions in difficult economic markets like today, so Exeter is pleased to host and sponsor this free webinar for real estate investors.  Click here to register for this free webinar.

Saturday, March 06, 2010

IRS Rules On Failed 1031 Exchange Transactions When 1031 Exchange QI Fails

Revenue Procedure 2010-14 was issued today by the Internal Revenue Service to help investors that were affected by 1031 Exchange Qualified Intermediaries that failed to complete the investor's Like Kind Exchange by acquiring and transferring replacement property to the investor.

The Rev. Proc. 2010-14 provides a safe harbor method of treating and reporting capital gain or loss for certain taxpayers who initiate tax deferred exchanges under Section 1031 of the Internal Revenue Code but fail (default) to complete their 1031 Exchange because their Qualified Intermediary has failed to acquire and transfer like kind replacement property to the investor.

The Internal Revenue Service will not treat investors that meet the requirements of Rev. Proc. 2010-14 as being in actual or constructive receipt of their 1031 Exchange funds when the investor did not complete his or her 1031 Exchange because of their Qualified Intermediary (QI) defaults and becomes subject to a bankruptcy or receivership proceeding.

Saturday, January 30, 2010

Revisiting Depreciation Recapture Issues When Cashing Out (Not 1031 Exchanging)

It is that time of year again when we field many questions regarding the reporting and tax treatment of 1031 Exchanges, or lack of 1031 Exchanges, on taxpayers income tax returns. 

There seems to be many more questions this year because many taxpayers just sold and cashed out rather than 1031 Exchanging again, and now have significant income tax liabilities. 

The one income tax issue involved with rental property that is often misunderstood is depreciation recapture.  Depreciation is mandatory if you buy and hold rental property or investment property, and the depreciation is deferred into the future upon sale of the rental property as long as you are structuring a 1031 Exchange transaction.  However, the depreciation will be recaptured upon sale if you are not 1031 Exchanging.

This is the reason that we have noticed an increase in depreciation recapture questions.  So, I thought that I would link to an discussion board post on depreciation recapture that will help explain the issue in greater detail.

Tuesday, January 26, 2010

1031 Tax Deferred Exchange of Internet Domain Names or URLs

I was speaking with a "Domainer" today and I thought this would be a good subject for my next blog post regarding 1031 Exchanges.  He was asking whether a Domainer could 1031 Exchange Internet domain names or website URL addresses for other Internet domain names or website URL addresses. 

What Is A Domainer?

First, you are probably asking yourself right about now what in the world is a "domainer" and what do they do.  I think you will be facinated by the technical definition.  I had to look it up for this post to make sure that I got it right, although I already had the general idea about domainers and domaining. 

Essentially, a domainer is someone that buys, sells, owns, and invests in Internet domain names or URL addresses for profit.  Domainers may buy and hold domain names/website URLs for sale or they may buy and position domain names/website URLs to product cash flow through a variety of strategies. 

Can You Defer Taxes On Sale of a Domain Name?

The question asked by this specific Domainer that called me was whether he could defer the payment of his capital gain taxes that resulted from the sale of an Internet domain name or URL address by buying (reinvesting in) another Internet domain name via a tax-deferred exchange. 

The short answer is yes.  The majority of taxpayers that are aware of 1031 Exchanges generally think that the strategy only applies only to real estate.  However, you can 1031 Exchange personal property, such as Internet domain names, as long as the Internet domain name was held for income production, investment or used in a trade or business. 

Domain names that are bought and held specifically for sale will not qualify for tax-deferred exchange treatment through a 1031 Exchange because they are treated as inventory in the Domainer's business and not as an asset used in the business or acquired and held for investment. 

Intent to Hold for Investment is Critical

The critical element in a 1031 Exchange of domain names is the Domainer's intent to hold the domain names for investment (as opposed to intent to hold as inventory for sale).  The sale and exchange of an Internet domain name that was acquired and held for investment or cash flow will qualify for 1031 Exchange treatment.  The sale of an Internet domain name that was merely bought and held with the intent to sell will not qualify for 1031 Exchange treatment. 

Monday, January 25, 2010

New Real Estate Blog and Discussion Board Launching

The Exeter Real Estate Blog has just been launched, and is looking for ideas for content.  Let us know what you would like to see in terms of content, discussion, and information.  Real estate will be discussed from all angles, including issues involved with buying, holding, managing, and selling real property. 

Sunday, January 24, 2010

Still Time to Register for "Just Show Me The Money" Seminar This Week

There are still spaces left for this week's seminar entitled "Just Show Me The Money" in San Diego, California on Wednesday, January 27, 2010, but time is running out.  You still have time to register early this week if you are interested. 

The program will cover numerous ways for the small, closely held business to obtain financing either through debt financing or equity financing and the various ramifications from each.  Topics will include sources of capital as well as the amount of control that you might have to be prepared to give up with the various financing options. 

Tuesday, January 19, 2010

Just Show Me The Money Seminar on 1/27/2010 in San Diego

Do you own your own closely held business?  Are you having trouble obtaining financing (debt) or raising capital to expand your closely held business?  This is a common problem in today's new world where the debt and capital markets are still problematic. There are ways to raise money.  There are solutions.  But, you must be creative and think outside of the box.  You are invited to a seminar entitled "Just Show Me The Money."

Friday, January 15, 2010

Never Heard of a Zero Equity 1031 Tax Deferred Exchange?

You may be thinking "why in the world would I even need a 1031 Tax Deferred Exchange if I'm losing my rental property through a short sale transaction?"

The answer to that question is very easy, but may surprise many investors who are going through a short sale, foreclosure or deed-in-lieu of foreclosure transaction themselves. 

Short Sale Scenario

Our story begins with a real estate investor who has been buying and holding investment properties for the last five (5) years. The real estate investor refinances all of their investment properties about once every six to twelve months depending on how much they have increased in value in order to pull out the cash equity in the property and acquire more rental properties. He or she maintains the loan-to-value ratio as close (as high) to 100% as possible.  It was easy to do so with the easy credit markets.

Now, of course, the real estate markets have gone through a free fall and probably have a little bit more to drop. The real estate investor's total market value of his or her real estate portfolio has plunged significantly below what is owed on the portfolio.  Renters have been and may continue to move out and rental income drops to below costs, expenses and debt service. The investor is no longer able to service the debt servicing requirements because the cash flow has dropped so much.

They have no choice but to sell the property and complete a short-sale, unless they want to lose the property through a foreclosure (trustee's) sale.

Capital Gains

Let's say the real estate investor bought the real property for $100,000.00 (original cost basis) and that the real property progressively increased in value over the years to $500,000.00 (fair market value). The real estate investor was able to refinance over and over again and now has total outstanding debt of $450,000.00 (90% loan-to-value ratio).

The investment property market value has now dropped to $300,000.00. The real estate investor owes $150,000 more than what the real property is actually worth on the market today, so he or she decides that their ownly alternative is to sell the real estate for $300,000.00 and complete a short-sale.

Here's The Catch

The real estate investor sells the property for $300,000.00, but he or she has a $100,000.00 cost basis, which translates into a $200,000.00 CAPITAL GAIN.

They are still going to owe capital gain taxes on the $200,000 capital gain (profit) even though they have sold the real property and have NO EQUITY in the real estate. Investors often get equity and capital gain or profit confused.


There is a possible solution, which is to defer the payment of the real estate investor's depreciation recapture taxes and capital gain taxes by structuring and completing a Zero Equity 1031 Exchange™ (the phrase was coined and trademarked by Exeter 1031 Exchange Services, LLC in April 2009).

The Structure Is Actually Quite Easy

It works like any other 1031 Tax Deferred Exchange transaction except that the real estate investor has no equity or cash position left in the real estate in order to structure the 1031 Tax Deferred Exchange. 
There is no cash proceeds for the 1031 Tax Deferred Exchange Qualified Intermediary to receive and hold as part of the 1031 Exchange transaction.

The challenge for the real estate investor is to find a way to acquire and finance like-kind replacement property as part of the 1031 Tax Deferred Exchange.  Structuring the Zero Equity 1031 Exchange is the easy party, but locating and buying suitable replacement property as part of the Zero Equity 1031 Exchange is the near impossible part.

However, the Zero Equity 1031 Exchange does allow the real estate investor to sell his or her troubled investment property, complete a short-sale AND structure a 1031 Tax Deferred Exchange in order to defer the payment of the capital gain taxes. 

It works well with transactions structured pursuant to a deed-in-lieu of foreclosure, too.  It gets a little more complicated when you are going to actually lose the property through a foreclosure.  You can contact me for assistance.  I would be happy to discuss this in greater detail with you.

Monday, January 11, 2010

San Diego Leading Economic Indicators Unchanged for November 2009

January 7, 2010 -- The University of San Diego's Index of Leading Economic Indicators for San Diego County was unchanged in November. Two of the components--consumer confidence and the outlook for the national economy--were up sharply during the month, and there was also a small increase in help wanted advertising. On the downside, local stock prices took a big tumble during the month. Building permits and initial claims for unemployment were also negative, but there were only slight declines in those components.

November’s unchanged reading broke a string of seven consecutive increases for the USD Index. There is no change though in the previously reported outlook for 2010. The first few months of the year may be weak, with the local unemployment rate edging up to approach 11 percent. Things will improve in the second half of the year, with a net overall gain of between 3,000 to 5,000 jobs for the year.

An improving housing market will boost employment in construction, while research and development and health services will remain relatively strong. Rebounding local and national economies will stabilize employment in retailing and in the leisure and hospitality sector. However, job losses are expected to continue in manufacturing, which has lost jobs in 10 of the last 11 years.

Thursday, January 07, 2010

Wealth & Legacy Seminar Series Announced for January 2010

The Center for Wealth & Legacy Studies™ is committed to helping successful business owners, especially those working or involved within the real estate profession or community, as well as their families 'pass forward' their financial success (wealth) along with their core family values, virtues, ethics and morals that helped to creat their financial wealth in the first place.

The Center for Wealth & Legacy Studies brings together an incredible diversity of professionals with significant experience and expertise in the wealth and legacy fields to identify and address the financial (wealth) and legacy issues facing each and every business owner and family member in today's complex and ever evolving world. The Center's goals and objectives are to instill hope and provide a specific roadmap for continued success throughout the generations to come.

Wealth & Legacy Seminar Series

The Center for Wealth & Legacy Studies delivers this information to business owners and families through various seminars and webinars, including their quarterly Wealth & Legacy Seminar Series offered originally in San Diego, California, and now offered in Las Vegas, Nevada as of January 2010. In fact, early bird registration numbers for the two Wealth & Legacy Seminars are already off to a really great start.

The Center for Wealth & Legacy Studies's first seminar to be held in the City of Las Vegas, Nevada Wealth & Legacy Seminar is scheduled for Wednesday, January 20, 2010, and its next San Diego, California Wealth & Legacy Seminar in the Series is scheduled to be held on Wednesday, January 27, 2010.

You can also view the next three or four seminars in the series with a brief sneak peak as to the topics to be addressed on the home page of each website. The cost is absolutey negligible ($40.00 for you, and you can invite two (2) guests at only $20.00 each). This is especially inexpensive when you look at the caliber of the speakers and the quality of the topics that will be presented. The bulk of the costs are covered by our sponsors. You can also view our prior seminars to see what we have brought to the table so far.

Sunday, January 03, 2010

Partner Buying Me Out. Can I 1031 Exchange Into Other Real Estate?

Three (3) investors own an investment property together.  They own the property as tenants-in-common, or co-owners, are each individually on recorded title to the property, and each report their own individual interest in the real property on their own income tax return.

Partner To Buy Out Remaining Partners

One of the partners now wants to buy the other two (2) co-owners of the real property out so that he or she now owns all of the property.  The two (2) partners will agree to be bought out as long as they do not have any income tax liability because of the sale.

Can Remaining Partners Structure 1031 Exchange?

The question is whether the two (2) partners that are being bought out can structure and complete a 1031 Exchange in order to defer their capital gain taxes into the purchase of another property. 

Generally, the answer is yes, because they each own a tenant-in-common interest in the real estate, are each individually on recorded title and each treats and reports their interest in the real property on their own income tax returns. 

The two (2) remaining partners can each decide individually to cash out, to structure a 1031 Exchange and go their separate ways, or to 1031 Exchange into the same replacement property and remain co-investors in the new property. 

Beware Of The Partnership Interest

This was a nice clean question and answer scenario.  It was a brief discussion that I had on the phone today.  There are numerous issues here that could change the answer to the question, so you should always have your legal or tax advisor review your specific situation.

The biggest area of concern is when an individual does not own an individual interest in the real estate, but actually owns and treats their ownership as an interest in a partnership. 

Saturday, January 02, 2010

Welcome To The New Year - 2010

The Exeter Learning Institute welcomes you into the New Year - 2010.  We look forward to a much more prosperous year, and to assisting you with your tax deferred and tax exclusion strategies. 

May you and your family have a very happy, healthy and prosperous New Year!