I recently received an offer on one of my duplexes that I could not pass up. SOLD MY CASH FLOW INVESTMENT! Now what? I had a net check for approximately $57,000 just sitting in my bank account that I was not prepared to invest right away. This all went down around in November around the end of the year and I was in holiday mode not thinking about buying any real estate investment property right away. BOY – I WAS HIT WITH A RUDE AWAKENING! TAXES
What I SHOULD have done was parked the money in a 1031 Exchange account! I know better or at least I should have known better as an investor who also works for REIClub.com. So I am sharing with you 3 investing tips for Investing & Selling Property using 1031 Exchanges.
What is a 1031 Tax-Deferred Exchange?
A tax deferred exchange allows us to sell a piece of investment (i.e. rental), trade or business property, buy a new property with the gain or profit from the sale, and not owe taxes on the sale immediately. If you eventually sell the new piece of property, you would owe taxes at that time. Generally, all gains and losses on sales of real estate are taxable, but an exception lies where the property sold is traded or exchanged for “like-kind” property. The new property is seen as a continuation of the original investment, so taxes are not due at the time of the sale.
REIClub Mentor Tips For Selling & Investing Using 1031 Real Estate Exchanges
Frank, our in-house Mentor, discusses on his quick investing training video, the advantages & disadvantages of using Delayed 1031 exchanges to manage the sale and capitals gains tax of real estate investment property.
Wendy Patton, breaks down the process in 7 easy steps in her real estate investing training article. She even includes key timeline dates real estate investors need to pay attention prior, during and after the sale of an investment property.
Phil Pustejovsky – is almost like an Investing Professor, breaking every single step down, going over all the in & outs of using 1031 exchanges – all on a white board in this dynamic real estate training video. Get this…he even uses Monopoly to explain his point!
Back to my story…. My accountant called me on Jan 26 and told me I OWED BIG TIME CAPITAL GAINS TAX ON MY SALE. I am writing this in all caps because that is how big my eyes opened up….when she hit me with the $AMOUNT$. It was close to $16,000. [Rounding up for dramatic effect 🙂 ]
I Wish I would have paid closer attention to Frank, Wendy & Phil when I was selling my cashflow investment property. I would have saved $$ and been more diligent in reinvesting back into my real estate business.