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How To Avoid Paying Capital Gains With A 1031 Exchange

This article is meant to be an introduction on the topic of performing tax-deferred exchanges. There are a number of legal hoops that the IRS makes you jump through to complete a tax-deferred exchange, but they are actually not that complicated once you study up on them a bit.

A tax deferred exchange allows us to sell a piece of investment (i.e. rental), trade or business property, buy a new property with the gain or profit from the sale, and not owe taxes on the sale immediately. If you eventually sell the new piece of property, you would owe taxes at that time. Generally, all gains and losses on sales of real estate are taxable, but an exception lies where the property sold is traded or exchanged for “like-kind” property. The new property is seen as a continuation of the original investment, so taxes are not due at the time of the sale.

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Many people view tax deferred exchanges as being for huge corporations, or only for professional investors. I believe that everyone should take advantage of these where they can. Strategy — purchase a rental home below market value, rent it for a year, sell it, and buy two rental properties with your gain. Note that if you do this too many times, the IRS may take the view that you are not a long term investor, and disallow such exchanges. When you get ready to do a tax-deferred exchange, you will need the services of a qualified CPA or Attorney. This is a basic introduction only, and you should always get professional advice from someone who has all the details on your deal, since so much liability is at stake. In my course I list the company that I use for these real estate exchanges. They are a national company and can help you out wherever you are in the country. I have used them for several deferred exchanges, and they have been an excellent resource and extremely competent.

Let’s look at how one of these deals would work. Assume that you own a rental property that has gone up in value. You’d like to sell this property and then reinvest the proceeds into some other rental real estate. You can avoid the tax bill if you can find suitable property to exchange for. The difficulty of the tax deferred exchange is that the property you are going to purchase must be identified within a certain amount of time, and it must be closed within a certain amount of time after it is identified. Unfortunately, no extensions are possible.

Identifying Property

You must identify property in a written document signed by you, and delivered to the party assisting you with the exchange (cannot be related to you!) on or before 45 days from the date you sold the original rental property. There is a growing body of support for identification of properties, and closing of new properties before the original property is sold. This is somewhat controversial and outside the scope of this discussion.

Technical Note: You can identify more than one property as the replacement property. However, the maximum number of replacement properties that you may identify without regard to fair market value is three properties. You may identify any number of properties provided that the total value of these properties is not more than 200% of the value of the original property you are selling. Note that you don’t have to close on all the properties you identify. You can name several if you’re not sure what will close, or not close, but you have to observe the rules in this technical note in terms of the value of properties you identify. If at the end of the identification period you have identified more properties than you are allowed, you are generally treated as if no property was identified. This means that you pay taxes!

Time Limits For Completing the Exchange

If you have correctly complied with the identification phase of the exchange, you have up to 180 days to complete an exchange, but the period may be shorter. Specifically, property will not be treated as like kind property if it is received more than 180 days after the date you transferred the property you are relinquishing, or after the due date of your return (including extensions) for the year in which you made the transfer.

For multiple property transfers, the 45 day identification period and the 180 day exchange period are determined by the earliest date a property is transferred.

Avoid Boot!

Boot is defined as any money or any type of property of unlike kind (example, a car received as part of down-payment). You will be taxed on this boot regardless of whether or not you carry out the exchange correctly. You will want your exchange company, or attorney to examine your transaction closely to make sure you don’t receive anything that could count as boot. Special rules apply for exchanging property with assumed mortgages.

Summary

The tax-deferred exchange is a great way to maximize your wealth. By keeping your investments growing without immediately paying taxes, you can do wonders for your net-worth. You will need to search out a good intermediary. I am happy to provide the name of mine for our members. This may seem like a dry subject, but it is important to understand when you begin to accumulate some rental properties.

Remember that this article is to provide basic information only. If you are planning on doing a tax deferred exchange, you really need to speak with a professional that handles these transactions on a regular basis. Information here is subject to change by IRS regulations or statute, so be sure to use current information provided by your accountant or other professional when planning a strategy involving tax deferred exchanges.

Position Realty
Office: 480-213-5251

Tenant Screening Saves You Time and Money

After a few weeks on the market, you finally found a tenant for your rental property. Because it’s been sitting vacant for more than a month, you decide against the tenant screening service you normally use. The information on the application seems good, and the one reference you contacted vouched for the applicant. Everything should be just fine. Right?

Fast forward a few months.tenant screening saves time money

You haven’t received the rent on time since the tenant moved in and now it looks like you won’t receive this month’s rent at all. Your old neighbor called to let you know that the yard looks horrible and there’s suspicion of drug activity going on in your property. You remember reading somewhere that if a crime is committed in your property, you might be found liable for it.

You’re out the rent money. You’ll have to pay to deal with the eviction and there’s no telling how much damage has been done to the property. Once you get the tenant out, it will sit vacant and produce zero income until you’re able to fix it up, get it back on the market, and find a better tenant.

This scenario plays out every single day with landlords across the country, but it doesn’t have to.

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Tenant screening saves you time and money.
Here’s how:

Financial History
Checking a tenant’s credit score lets you know if they consistently pay their bills on time. You may decide to rent to someone with a poor credit history due to the circumstances surrounding their late payments or bad debt – medical problems, divorce, or more. Knowing their financial history lets you decide if you should charge a higher deposit or move on to the next tenant.

Eviction History
Eviction history information may come from just your state or you can check nationwide, but it’s invaluable to know before you approve a new tenant. There’s no guarantee that your tenant won’t need to be evicted even with a spotless history, but it’s always better to be safe than sorry. You can save yourself the time and cost of the eviction process by checking a tenant’s history and making the decision whether to rent to them or not.

Criminal History
If a crime is committed in your rental property, criminal charges could be brought against you. As a landlord, you also have an obligation to the neighborhood where your property is located to help keep it safe. A criminal background check, as well as checking the terrorist watch list and the sex offender registry list let you know ahead of time if you’re dealing with a dangerous felon or someone who simply made a youthful mistake. There isn’t enough money or time that can make up for a horrific crime being committed in your neighborhood or property simply because you didn’t have a criminal background check done.

Verification of Personal Information
This may sound basic, but you need to know if your tenant is who they say they are. Using a tenant screening to simply help verify their information may save you time and money as well as prevent further identity theft or other criminal acts. It’s likely that if someone lies about their basic information, their financial, eviction, and criminal histories may be spotty as well.

It may seem to be quicker and cheaper to skip the tenant screening with a new tenant. You need your property to produce income and for that you need a tenant. Screening protects you and your property as well as giving you peace of mind about who you’re renting to. Save yourself time, money, and headaches and screen all prospective tenants.

Position Realty
Office: 480-213-5251

Top 10 Home Apps to Download Now

With smartphones, wireless technology, and nearly continuous connectivity, the options to help you manage and upgrade your home are just a click away. Dozens of free or low-cost home apps can help with every project and chore – ranging from starting a budget-friendly luxury home design project to managing your smart home technology.

But which ones are the best to download? There are literally millions of apps available—including 1.6 million for Android devices and over 1.5 million apps for Apple devices—and it can be challenging to even stumble upon the ones that are useful. Here, we’ve gathered 10 of our favorites that are both easy to use and helpful for managing, maintaining and upgrading your home.

SnapGuide
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Snapguide app for DIY projects

App cost: Free
Platform: iOS
Category: DIY Home projects

This how-to app is a crowd-sourced guide of home design projects. It contains everything from refreshing furniture with colorful paint and homemade throw pillows to more complex projects like building a stone fireplace with a wood-burning stove or a barn door. There are also snap guides for gardening, cooking, entertaining, and more. You can show off your own handiwork by creating your own guide to share through the app.

TapPainter

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Tappainter app for home decor

App cost: Free
Platform: iOS
Category: Home design – painting

Adding paint in the right color can make your space feel vibrant and fresh. But it can feel intimidating to add interior color other than a new shade of white or beige. TapPainter is a home app that lets you try out new hues before shelling out for the gallons of custom-mixed color. Take a photo of your space and TapPainter will analyze the change in interior lighting and adjust the color brightness based on the lighting in the photo. You’ll instantly see if that rich red will make the room too dark, or if that bright yellow looks sickly fluorescent. And you won’t have to fear adding color on your walls.

ColorSnap Visualizer

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ColorSnap Visualizer from Sherwin-Williams

App cost: Free
Platform: iOS and Android
Category: Home design – painting

Some of the most harmonious color combinations are found in nature—think of a beautiful mountain landscape, a beach scene, the desert, or an open field of wildflowers. With this Sherwin-Williams branded home app, you can take any one of your favorite photos and use it for paint color inspiration. The app will let you match colors in the photo into a coordinating Sherwin-Williams paint palette that will give your space a warm and inviting feel. Or use the tool to match paint colors to coordinate with existing furnishings, bedding, pillows, or anything else in your space.

Adornably

Adornably
Adornably furniture design app

App cost: Free
Platform: iOS
Category: Home design

Before you invest in an expensive new sofa or any upholstered furniture, snap a picture of your space and start using Adornably to virtually redecorate. The home app allows you to place furniture and customize the upholstery to find a smart new look before you buy. Once you find a piece that looks the way you want it, you can order it through the app. Instead of waiting months to get your new furniture, the custom pieces typically leave the factory within a week of ordering.

Home Depot

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Home depot home remodeling app

App cost: Free
Platform: iOS and Android
Category: Home design

Start any DIY home design project, or get ideas for refreshing your space, from the comfort of your couch. This shopping and remodeling home app will help you get ideas for renovating your kitchen or bathroom, improving your outdoor space, upgrading to better lighting, installing ceiling fans, adding hardwood flooring, and more. You can make and save shopping lists, find item quickly in your local store and even check on inventory to make sure it’s in stock. Purchase items right through the app and pick them up in your local store, or have them shipped directly to your front door.

iScape

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iscape landscaping app

App cost: Free
Platform: iOS and Android
Category: Outdoor landscaping

A beautifully landscaped yard can give your home instant curb appeal. But before you start digging up the yard or buy several flats of flowers, you can pre-plan your gardening and landscaping with iScape. The intuitive, visual planning tool lets you snap a photo of your yard and start dragging and dropping new landscape features. You can change out the grass, add in flowerbeds, trees, planters, and lawn ornaments into your design. Once you’ve created your virtual landscape design, you can use your finished image as a guide for your own DIY project or to clearly communicate your design ideas to a hired landscaper.

SmartThings

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SmartThings app

App cost: Free + SmartThings kit ($300)
Platform: iOS
Category: Smart home control

SmartThings turns your iPhone into a remote control for all of your devices. You will need to add the SmartThings kit—which comes with a hub and variety of sensors—to network all of your appliances and convert them into smart devices. The system can add security with motion sensors and capture activity in your home via video. It allows you to control and automate lighting and energy settings to maximize efficiency and savings. And you can have your appliances automatically brew your coffee, start cooking dinner, or play your wakeup music on your pre-programmed schedule. And in case you leave the TV on after leaving the house, you can easily turn it off remotely via the app.

Ninja Blocks

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Ninja blocks smart home app

App cost: Free + Ninja Block hardware ($200)
Platform: iOS and Android
Category: Smart home control

Fully connect your home to your smartphone through Ninja Blocks. The hardware and app combination allow you to seamlessly merge the controls of your smart lights, power, media, monitors and motion sensors without complicated wiring and configuration. The difference with Ninja Blocks is that it’s the ultimate device for technology enthusiasts who like to tinker. The open source platform allows anyone to code for their own Ninja Blocks. You’re encouraged to customize and hack your hardware and design the controls to work the way you want them to work.

Handy

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Handy home cleaning and repair services app

App cost: Free
Platform: iOS and Android
Category: Home maintenance

Don’t have time to clean your house, or need a little extra help to get the job done regularly? Use the Handy app to find a vetted cleaner who can take care of those chores. Their roster of experienced professionals who have been background-checked and insured, are available as soon as the next day for cleaning services. Handy’s cleaning services are currently in 35 cities, and some locations also have home repair and handyman services, such as furniture assembly, TV and shelf mounting, interior painting, and moving help.

HomeSpot HQ

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HomeSpot HQ home maintenance app

App cost: Free
Platform: Web-based app – all platform
Category: Home maintenance

HomeSpot HQ will help you keep track of all of your home’s maintenance and improvement projects all in one place. It delivers any reminders that you set – for example, changing the A/C filters or the smoke detector batteries, cleaning out the gutters—so that you never forget to take care of routine chores. Make to-do task lists and shopping lists and use the weekend planner to get bigger improvement projects done. The app also allows you to organize user manuals, paint colors, and part numbers in your account so you never misplace important repair information.

Do you have any favorite home apps not included in this list? Let us know about them in the comments.

Are you planning a home improvement project to prepare your home for resale? If so, be sure to contact your trusted real estate professional for advice on how to list and price your property to maximize your profit.

Position Realty
Office: 480-213-5251

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