Gilroy Today 2013 03 Spring | Page 20

Hold on to your Real Estate Capital

Due to current appreciation trends in the real estate market and federal and state tax increases, Tax
take place within a dictated period, with the value of one property covering( contributing to) the purchase of another. Any exchange
Deferred Exchanges, also known as 1031
requires strategy, trust, and a team who
Exchanges, are reviving in popularity.
understand how to work within the rules of the
If you have real estate holdings you wish
chosen exchange type.
to sell and repurchase without paying taxes
There are many reasons for pursuing a
on your sale income, an exchange may
1031 exchange and many benefits. Whether
be the perfect option. Whether reasons for
you are looking to 1) sell a current investment
an exchange are focused on entering into
property to change property type( i. e. selling
a new type of property( from Residential
two rental houses or an apartment in order
holdings to Retail, for example
to purchase commercial
) or a new location, an exchange has many benefits.
There are many types of property exchanges; simultaneous, delayed, reversed, built to suit,
1031 and 1033 exchange. In today’ s market, specifically in
In today’ s market, specifically in California, 1031 exchanges are of considerable and growing benefit to many.
or office buildings, or moving from ownership of raw land to industrial, etc); 2) renewing expiring depreciation value in assets, consolidating investments; or
California, 1031 exchanges
3) following the market
are of considerable and growing benefit to
to achieve greater appreciation. A 1031
many.
exchange can allow sale and purchase of
With new state legislation, California
investment property without the extreme loss of
property holders face huge tax increases
capital through taxation. A 1031 exchange
and therefore a potential reduction in capital
has many subtypes and to know which is
with the sale of real estate. The sale of
right for you is a task for your advisor. In
property( ies) means the seller will see new
pursuing a 1031 exchange you should make
charges of up to 20 % Federal Capital
clear to your financial advisors, any partners,
Gains tax, 13 % State tax, 25 % depreciation
your agent and others what your goals are.
recapture, and 3.8 % Healthcare tax. Do not
Making intent clear will allow your agent and
panic! There are ways to sell and purchase
advisors to help you transition smoothly to the
without these massive losses in capital. If you
new investment and eliminate improper or
are looking to trade-in your property— to
unsuitable investment properties.
purchase a property of another type or in
As the period of sale and purchase are
a new location— sale and purchase do not
standard, there are some simple but important
have to be strictly separate things, which
ways an investor can ensure a smooth 1031
would trigger taxes due. The answer is 1031
exchange. Here again, the most important
Exchange.
factor to a successful exchange is to have an
In an exchange, the selling party is also
agent who is on point and on board with the
a buying party and both sale and purchase
investor’ s intent. While often times dictating
By George Renz
George L. Renz, CCIM, ALC was born and raised in Gilroy. He is the broker, owner and operator of Renz & Renz Real Estate Brokerage; specializing in commercial and investment property sales and 1031 Exchanges in South County and beyond since 1983. Visit his website at www. renz-renz. com or call 408.846.1031.
how long it will take to find a buyer with your property on the market, it can often be challenging to find a replacement property. If you already know what type of property you are looking for, it is good to keep current with what is available that might fit your needs.
Strategies for exchange should be discussed with your agent prior to listing. Some investors may find exchange unsuitable for them. But for those who know they are not looking to cash out of investing but are really pursuing a different type of investment or location, a 1031 exchange can help them keep hold of that investment capital and work it into an evolving real estate portfolio.
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