Scott Saunders, SVP of Asset Preservation Corp., recently conducted a webinar for members of the Five Star Institute’s FORCE titled “The Power of Exchange: 1031 Tax Deferred Exchanges for Single-Family Rental Investors” as part of the Single-Family Rental Summit Webinar Series.
According to Saunders in the webinar, capital gain taxes went up 58 percent in 2013, which was one of the big things fueling 1031 exchange activity. Since real estate investors have high capital gains, they are often trying to find ways to keep from paying the high taxes.
With no exchange, there are four levels of taxes—taxation on depreciation recapture (25 percent), federal capital gain taxes (20 percent), net investment income tax (3.8 percent), and applicable state tax (13.3 percent).
Meanwhile, home prices have recovered nationally since 2007; they are up by 12 percent from two years ago and have increased every month since March 2012. A 1031 exchange gives anyone with any property the ability to defer taxes when profit is invested in another property.
Real estate investors have three options: Hold, sell, and exchange. The exchange exceptions include: stock in trade or other property primarily held for sale; stocks, bonds, and notes; other securities of indebtedness or interest; interests in a partnership; and certificates of trust. For full tax deferral, investors can reinvest all net exchange proceeds or acquire property with the same or greater debt.
Click here to view the webinar.