Internal Revenue Code (IRC) Section 1031 provides an excellent strategy for the deferral of capital gains tax which would ordinarily arise from the sale of real estate. Exchanging defers the realization of the capital gains tax, leaving the property owner with substantially more proceeds with which to purchase a replacement property. The tax code states, "No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment purposes if such property is exchanged solely for property of like-kind, which is to be held for productive use in trade or business or for investment purposes." Real estate investors can accomplish virtually any investment objective using Internal Revenue Code 1031, including greater leverage, diversification, improved cash flow, geographic relocation, or property consolidation.
HOW DOES IT WORK?
A 1031 Exchange is a three-way exchange in which an intermediary, usually a title company or escrow agent, is used to facilitate the transaction.
THE BASIC STEPS ARE:
THE TENANT-IN-COMMON EXHANGE OPTION
- Facilitate sale of your property (downleg)
- Assure proper contract and escrow language
- Transfer sale proceeds to qualified intermediary
- Meet 45 day identification requirement
- Open acquisition escrow (upleg)
- Complete exchange within 180 days
A 1031 Exchange allows the investment property owner to exchange his management-intensive property for professionally managed institutional quality real estate with the potential to generate steady income, tax benefits, and appreciation. With an Exchange, the owner no longer feels burdened by his investment. Instead, the asset is professionally managed, while the investor enjoys the income, tax benefits, and capital appreciation. If you are an income property owner with onerous tax consequences if you sell, Internal Revenue Code 1031 Exchange and tenant-in-common ownership provides an excellent solution. You can sell now and exchange into a high-quality, professionally managed property with no tax consequences. When it is time to sell the replacement property, you will have the option to do another 1031 Exchange and defer capital gains tax again!
SUMMARY OF TENANT-IN-COMMON OWNERSHIP
WHAT ARE THE RESULTS?
- Deferral of capital gains tax
- Ownership of quality institutional property
- Professionally managed property
- Ability to retire from day-to-day management
- Income that may be greater than income from original property
- Potential for greater appreciation from quality investment properties selected by an experienced professional real estate company
- Control of your assets
- No restrictions on refinancing
- Ability to do another exchange after sale of your Tenant-in-Common ownership
When the 1031 Exchange is complete, you will own a tenant-in-common interest in one or more quality institutional grade multifamily properties. Your income replacement property will often be greater than you were receiving from your original property. Virtually everyone who owns income property can benefit. Although owners are comfortable with real estate investments and have had good returns in the past, they do not like the daily headaches and expense that accompany property management. They are ready to give up the hassle of dealing with tenants, maintaining the facilities, paying property taxes and other costs of the property.
HOW DO I GET STARTED?
Call your investment advisor. He or she will be happy to answer your questions and provide you with the information you need to get started with a Tenant-in-Common Exchange program or call RK Properties directly and ask for Investor Relations.