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February 2017 Blog Posts (13)

Solo 401 k Loan: What could go wrong without proper knowledge?

[Understanding Solo 401 k Loan  

Ask any financial expert, dipping into your retirement savings is the last piece of advice you could expect. However, some circumstances require urgent attention and your retirement savings can offer the much needed financial cushion. If you’re an owner-only business or self-employed professional with a Solo 401k plan, the…

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Added by Dmitriy Fomichenko on February 24, 2017 at 1:18am — No Comments

Beware Hidden Boot In Prepaid Rent & Security Deposits

When it comes to #1031 exchanges, the key to full tax-deferral of capital gains is avoiding any real or constructive receipt of sale proceeds or other income related to the overall transactions. It sounds easy enough in theory, but many investors unwittingly violate this rule – and end up with taxable funds – when it comes to prepaid rent and security deposits on relinquished rental properties.

In a typical, non-1031 exchange closing, any prepaid rents or security deposits held by the…

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Added by Dr. Robert G. Hetsler, Jr. on February 23, 2017 at 10:55am — No Comments

How Soon Can I Refi After a 1031 Exchange?

One question I often field from my clients is when and how they can refinance their replacement property without triggering IRS attention (and potential tax liabilities).

The good news is, that with a bit of pre-planning, you can complete a tax-free 1031 exchange and then refinance immediately afterwards. If done correctly, you can receive those refinancing proceeds tax-free, too. The key to avoiding IRS classification of the proceeds as boot lies in the timing of the refi.

You…

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Added by Dr. Robert G. Hetsler, Jr. on February 22, 2017 at 11:58am — No Comments

Who Is a Related Party In a 1031 Exchange?

It’s no secret that the IRS carefully scrutinizes every #1031 exchange. However, there is one situation that triggers an extra level of scrutiny – when “related parties” conduct the transactions.

Why? Because the IRS believes that widespread abuse exists when certain individuals or entities exchanged properties. This abuse comes in the form of basis shifting. Basis shifting offers a significant advantage when the exchanged property is ultimately sold outright.

But when is this…

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Added by Dr. Robert G. Hetsler, Jr. on February 19, 2017 at 7:35am — No Comments

The Basics of NNN Lease Properties

As an investor becomes more savvy in real estate and adds more properties to their portfolio, the day-to-day involvement may begin to be too much. These investors are often looking for better ROI and less responsibility. Which is why many investors eventually turn their attention to Triple Net Lease-type properties. But for the investor new to this niche of real estate investing, these properties – commonly called NNN or STNL in the industry – remain somewhat of a…

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Added by Dr. Robert G. Hetsler, Jr. on February 18, 2017 at 10:48am — No Comments

How Does a 1031 Exchange Impact State Income Taxes?

As a qualified intermediary and licensed real estate professional, I’ve personally seen the surge in taxpayers leveraging the power of a #1031 exchange. It is a great way to defer capital gains taxes and more quickly build a portfolio of business or investment properties.

Yet one area where more than one taxpayer has been caught out involves the impact of state income tax liability on the transactions, particularly when it comes to interstate exchanges. Since broadening geographic…

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Added by Dr. Robert G. Hetsler, Jr. on February 16, 2017 at 6:37am — No Comments

Can You Recoup Your Initial Down Payment in a 1031 Exchange?

If you are an investor preparing to sell one property and acquire another, one question you might be wondering about has to do with your original down payment on the property you plan to sell (the “relinquished property” in #1031 lingo). More specifically, you may be asking if it is possible to withdraw in cash an amount equal to your down payment and still achieve 100 percent tax-deferral on the capital gains.

Unfortunately, the IRS takes the position that any money taken out of the…

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Added by Dr. Robert G. Hetsler, Jr. on February 10, 2017 at 9:28am — No Comments

Separating Fact from Fiction in 1031 Exchanges

With a new administration in the White House and ongoing rumors that Section #1031 is in the legislative crosshairs, now might be the best time ever to begin your own 1031 exchange.

But before you dive in, be clear about what is true (and what is not) about this beneficial tax-deferral tool.

A taxpayer cannot complete a 1031 exchange with a related party.

FALSE! Related parties can buy or sell property in a valid 1031 exchange. When…

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Added by Dr. Robert G. Hetsler, Jr. on February 9, 2017 at 7:05am — No Comments

How to Calculate Deadlines in a 1031 Exchange

Anyone who wants to complete a #1031 exchange and defer capital gains taxes on the sale and replacement of investment or business property must understand IRS timing rules. Internal Revenue Code requires that you identify your replacement property (or properties) within 45 days of closing on the sale of your old property. You must then close on the property within 180 days, a time period that runs concurrently with the 45 days.

But how are those days calculated? Does it include…

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Added by Dr. Robert G. Hetsler, Jr. on February 8, 2017 at 1:03pm — No Comments

What is the Two-Year Holding Rule in 1031 Exchanges?

In most #1031 exchanges, the parties to the process only come together because one is selling something the other one wants. They don’t likely know each other, and, in many cases, may never meet at all. For those transactions, special rules of IRS code may never come into play.

However, when related parties want to use section 1031 to exchange property, both sides must be clear on this particular part of IRS code. When related parties exchange property and want to qualify for…

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Added by Dr. Robert G. Hetsler, Jr. on February 7, 2017 at 1:28pm — No Comments

Sell or Exchange Your Investment Real Estate? It Depends.

If done correctly, a #1031 exchange allows an investor to defer paying all of the capital gains taxes, which equates to a long-term and interest-free loan from the IRS. Nice, right? In addition, the investor then has all their gross net equity available to reinvest so they can acquire bigger and better real estate. This would not be possible if they had simply sold outright and paid taxes on the sale.

So the real advantage of a 1031 exchange is not deferral of capital gains. It is the…

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Added by Dr. Robert G. Hetsler, Jr. on February 6, 2017 at 6:41am — No Comments

Don't Forget About Due Diligence In Your TIC or DST Transaction

Every investor wants to be certain that they are putting their money into solid investments, especially when it comes to complex real estate transactions. Due diligence – the analysis of the circumstances surrounding an investment – and full disclosure of all material facts is an essential component of the investment process. Especially when it comes to Tenancies in Common (TIC) and Delaware Statutory Trusts (DST).

Every responsible investor should make sure they complete this very…

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Added by Dr. Robert G. Hetsler, Jr. on February 3, 2017 at 10:48am — No Comments

Is An Audit More Likely If You Do A 1031 Exchange?

Audit. The mere word conjures up sweaty palms and a racing heartbeat. Opening your mailbox to find a letter from the #IRS is stressful enough. Opening it and discovering you’re subject to an audit takes stress to another level.

Not surprisingly, investors considering a #1031 exchange are often concerned that doing so might increase their risk of the dreaded IRS audit. But is that true?

While I don’t have a crystal ball to predict what triggers an audit, in my two decades of…

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Added by Dr. Robert G. Hetsler, Jr. on February 1, 2017 at 11:21am — No Comments

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