1031 Exchange FAQs

1031 Exchanges can be confusing, from deadlines to replacement properties, there are a lot of things to consider! Below are a few frequently asked questions that may help provide some clarity.

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A 1031 Exchange stems from IRS Code Section 1031 and allows for an investor to defer his capital gains tax during the sale of an investment property through an exchange of sale proceeds of an existing property being used in the purchase of a new property.

By utilizing a 1031 Exchange an investor is able to defer that capital gains taxes owned by utilizing the funds from the sale of their existing investment property to exchange into the purchase of a new one. There are guidelines that an investor must adhere to, but a 1031 Exchange is one way to defer capital gains tax.

There are many rules to a 1031 Exchange, but the most critical ones are the deadline rules.  

      1. After the sale of your property, you have 45 days to identify one or more property you would like to exchange into.
      2. Within 180 days of your sale, you must complete the exchange or incur capital gains tax

When you sell a property that is eligible for a 1031 Exchange, the proceeds go to an exchange accommodator. The accommodator oversees the 1031 transaction, distributes the exchange proceeds to the escrow for the purchased property at closing.

If you are looking for the answer in 2021, the answer is certainly ‘no’. The Tax Cuts and Jobs Act of 2017 signed into law by President Donald Trump on December 22, 2017 clarified the requirements for an exchange to qualify for tax deferral under section 1031 of the Internal Revenue Code. As you might guess, that clarification provides that only real property (as defined in final IRS regulations issued in late 2020) that is held for investment purposes qualifies for a 1031 exchange. Unfortunately, stocks, bonds, or other evidences of indebtedness are all excluded from the definition of real property and thus do not qualify.

In a reverse 1031 Exchange, an investor first purchases the property he wants to trade into before selling his current property.

No, for a property to qualify for a 1031 Exchange it must have been an investment property for the last two years before it can qualify.

You can sell it at any time, however then your deferred capital gains tax will become due.

There are two main rules when it comes to the number of properties that you can identify when doing a 1031 Exchange.  Those are:

      1. 200% Rule:  An investor can identify a property worth up to 200% of the original building that the investor sold
      2. 3 Property Rule: An investor can identify one, two, or up to three properties for their exchange

No. The property must have been used for investment purposes for at least 2 years prior to being considered for a 1031 Exchange

No. 1031 exchanges are for investment properties only

After the closing of the sale of an investment property, the investor has up to 45 days in which to identify the property that he would like to trade into. From the date of closing, the investor has 180 days, in which he must finalize the transaction.

If this home is used for investment purposes and has so for at least the past two years, it may be considered for a 1031 Exchange. However, each individual’s case is different and you should consult a professional if considering a 1031 Exchange.

Yes, as long as it is not your primary residence and is like-kind property. You must also be fully aware of how you will replace the net proceeds and debt. Furthermore, improvements made on a property do not qualify for tax deferral under a 1031 Exchange but can be treated as a deduction on a Schedule E form.

TFS Properties is a full-fledged real estate brokerage that focuses on 1031 Exchange Planning & Commercial / Residential Real Estate. Our relationships with key brokers & acquisitions teams give us access to properties before they hit the open market. We focus on out-of-state commercial real estate but assist with listings in Los Angeles where our offices are located.

Off-Market Properties available: NNN / Multi-Family / Government & Medical Facilities / Out-of-State / Single-Family Rentals / Brand New Development & More.

A cap rate (also known as a “capitalization rate”) is a real estate valuation measure used to compare different real estate investments. Although there are many variations, a cap rate is often calculated as the ratio between the net operating income produced by an asset and the original capital cost (the price paid to buy the asset) or alternatively its current market value.

Cap Rate = Net Operating Income (NOI) / Fair Market Value

The best time to do a 1031 Exchange is when you have an appreciated asset & would like to defer the state & federal capital gains tax.  Most of our investors are looking for in increase in monthly cashflow and as such trade into such a property, through a 1031 Exchange.  It is best to sit down with an Investment Agent & Tax Preparer prior to listing your property in order to maximize your exchange. 

There is a 45-day period in which you are required to identify your replacement properties & from our experience, you never want to wait until the last minute.   We have hassle-free off-market rental properties available.

Real estate can be purchased directly through a trust, LLC, LP, self-directed IRA, transferred from an existing IRA / Roth-IRA, or rolled over from a qualified plan and/or 401(k).

Please contact a TFS Real Estate consultant if you need help selecting a custodian.  We have great partners that can help!

Our 25+ years of experience in real estate & database of over 10,000+ real estate investors make it easy to find a buyer for your qualified property.  In addition, TFS Properties helps investors identify & close escrow on high-quality replacement properties with high cap rates (%).

For our Los Angeles Investors, while you are selling your property in a peak market, you are also buying into a peak market as well.  We have commercial NNN properties located out-of-state with national & credit tenants.  Learn More.

Yes.  Investors are able to invest through an LLC or trust.

When performing a 1031 Exchange you can only exchange U.S. Property for U.S. Property and foreign property for foreign property.

Triple Net Lease FAQs

Here are a few of our top questions we frequently get asked about how we manage their portfolios.

A type of lease agreement on a property whereby the tenant or lessee is obligated to pay all the expenses of the property including taxes, building insurance, maintenance, etc.

The “triple Net” in triple net lease refers to Net taxes, Net insurance, and Net maintenance

NNN Lease is another term for a Triple Net Lease.

In a NNN lease, the tenant is responsible for most of the expenses and maintenance, with the landlord typically being responsible for the roof, the structure, and on occasion the parking lot as well.

Triple net leases offer much more predictability of income compared to other real estate investments. This is because of the fact that maintenance and almost all the expenses of the property including taxes, building insurance, maintenance, etc. are the responsibility of the tenant

Typically it is a negotiation between a landlord and tenant with the lease being established based on market conditions

Under most circumstances, utilities are paid for by the tenant. That being said each lease is unique and we include legal counsel in reviewing our leases & suggest the same for all our clients.

Manufactured Home Investing FAQs

Here are a few of our top questions we frequently get asked about how we manage their portfolios.

Manufactured homes are prefabricated homes built after 1976. These homes are built to HUD standards and are often near indistinguishable from site-built homes, once they have been transported to the site of the home.

As with any other asset class, the price of a manufactured home varies depending on things such as location, age of the property, condition, etc. However, when compared to traditional homes, they are significantly more affordable.

Because manufactured homes are built to HUD standards they are strong and built to last. There are homes originally built in the 1980s that still stand today and act as a source of rental income.

If you are interested in purchasing a manufactured home, our team is highly trained in manufactured homes and can walk you through step-by-step how to become the owner of one, yourself. 

One of our qualified associates can help you purchase a high cash flow manufactured home.  Contact us at 626-551-4326 today!

TFS Properties will be pleased to help you find quality manufactured home to purchase. These homes are long-term leased home sites in quality parks. Leases are a minimum of 30 years with typically one, 15-year option to renew.

Whether an investment is good or not is always subject to the investor that is evaluating the product. That being said, many major investment firms have poured hundreds of millions of dollars into this asset class even with a looming recession. [refer the reader to our article on this topic]

Mobile home park investing is essentially just investing in manufactured homes that were built before June 15, 1976. Anything built before is considered a mobile home.

HUD changed their policies that year which rendered this old-fashioned version of manufactured homes to be obsolete. Ultimately, the two phrases refer to different iterations of the same concept and in many cases they are used interchangeably

While they have many benefits, particularly attractive, high cash-on-cash returns, they sacrifice as to appreciation. As Manufactured homes are located on long-term rented spaces in quality parks, they lack underlying land ownership as well as the potential of future land ownership appreciation.

They also may suffer from deep-rooted stigmas surrounding mobile homes and trailer parks.

For taxable depreciation, we suggest you speak with your tax advisor.

Financing a mobile home requires careful underwriting. If this is something you are interested I, feel free to contact one of our qualified associates at 626-551-4326

One of the core concerns for owners of manufactured homes, formerly known as mobile homes, is that there is a lack of maintenance on the part of the tenant.

Another common concern is how lenient the local regulations are towards the manufactured homes.

Portfolio MGMT FAQs

Here are a few of our top questions we frequently get asked about how we manage their portfolios.

Our primary objective is to protect investor capital, TFS Properties  utilizes data-driven analysis in our projections.  While many agents are aggressive in their analysis, our firm practices risk-aversion & are conservative when it comes to projecting returns for our clientele.

Nonetheless, investors should also perform their own due diligence before considering any investment. Past performance and/or forward looking statements are never an assurance of future results – that is the universal rule in real estate.

Our TFS Real Estate Consultants will help you sell your property when the time is right for you.  We will counsel you on all aspects of your transactions & assist you with our 25+ years of 1031 Exchange planning.

Yes, TFS Properties will assist you in this process.  It is best to sit down with an Investment Agent & Tax Preparer prior to listing your property in order to maximize the potential of your sale.

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