1031 Exchanges – Every investor can use this reinvestment tool.

________main-2San Xavier73

 

“A clever man commits no minor blunders.”

By Keith O’Donnell, Mark M. Rubin | Nov.Dec.15

Investment activity has been vigorous since the economic rebound, especially in highly stabilized markets, such as New York, South Florida, and San Francisco. A nearly 100-year-old Internal Revenue Code provision has seen a resurgence of popularity due to its immediate and long-term benefits to the investors who use it to structure deals.

The power behind IRC section 1031, often simply referred to as a “1031 exchange,” is that it is available to every investor, regardless of size, as long as the property has been used for business, productive use, or investment purposes. The code allows investors to defer capital gains and unrecaptured depreciation, and unlike many investment activities, it does not have a “sweet spot” or ideal range.

This discussion of how exchange rules came to be and why revocation would provoke a negative outcome for the general economy, as well as the real estate investment community, helps investors understand the overarching, long-term benefits of 1031 exchange transactions.

Promoting Economic Growth

Also known as a “like-kind” exchange, a 1031 exchange is a way of structuring the sale of an asset so that the seller’s profit or gain is not currently taxed. Instead, the asset being sold is replaced with another like-kind asset, which must be acquired within a relatively short timeframe.

From the time the relinquished property closes, the exchangor has 45 days to identify potential replacement properties and 180 days to acquire a replacement property. The entire transaction must be completed in 180 days, not 45 days plus 180 days. If the transaction is properly structured, the seller’s profit or gain is deferred to a future transaction date.

Investors of all classes use 1031 exchanges as a tax strategy to defer taxes when selling a property for a profit. When investors incur losses, they generally do not elect a 1031 exchange, as they often prefer to recognize the loss in the current tax year.

While the rules that apply to all 1031 exchanges were enacted by Congress in 1921, two primary purposes of the rules are more relevant today: to encourage active reinvestment into the economy and avoid unfair taxation as investors reinvest.

In short, 1031 exchanges were intentionally designed to increase the volume of business in the economy and promote growth. While real estate may have been the catalyst to the recent economic recession, it is also a leading indicator of strength of economy when it is trending positively.

Today’s Exchange Market

In today’s seller-friendly commercial real estate investment market, multiple buyers often compete to purchase available for-sale real estate assets. Such a climate benefits sellers, as it drives up the purchase price of their properties. However, in turn, if sellers are looking to reinvest in a 1031 exchange to mitigate tax implications, they may face the same competition on the buyer’s side.

Thus, 1031 investors are often willing to pay a market premium for the asset they are bidding on as they take into account their tax benefits as part of their investment return analysis. These buyers are also less likely to attempt to renegotiate the business terms during the due diligence period as they have to complete the transaction within a limited timeframe to defer capital gains taxes.

In addition, 1031 buyers are often attracted to off-market transactions to avoid a competitive process. An example of this recently took place in Boca Raton, Fla., a submarket of Palm Beach County that continues to attract investors seeking safe and stable commercial real estate yields. Avison Young’s knowledge of local assets and strong network of relationships with property owners in the market resulted in identifying an off-market property within 45 days to fulfill the buyer’s 1031 requirement. The $33 million sale of 595 Financial Center, a two-building, class A office portfolio totaling 116,000 square feet was purchased by Pinnacle Holdings in a 1031 tax-deferred exchange. Working with the seller’s agent, Avison Young closed the transaction within the buyer’s tight time constraints at a price nearly 10 percent below its previous sale price.

Investors have always needed to consider the potential for future increases in capital gain taxes when deciding to execute a 1031 exchange, as they face the risk of paying higher capital gains taxes in the future. Recent and potential capital gains tax increases, as well as expectations of interest rate increases, have added a wrinkle to the exchange practice. Today, more investors believe that the market may be peaking and are deciding to pay their taxes now rather than buying into a premium competitive market and running the risk of paying higher rates in the future.

Economic Impact

The misconception is that 1031 exchanges only benefit investors going through the 1031 process because they can defer taxes on properties sold. However, if this was no longer the case, 1031 sellers might be more inclined to hold on to their properties, which could potentially slow down reinvestment into the economy.

Ongoing, robust investment sales activity can have benefits beyond the 1031 investor, by its impact on the job market, potentially contributing to the sustainability of certain industries. If sales were to decrease momentum due to a repeal or limitations on 1031 exchanges, banking, finance, legal, construction, and other real estate-related industries could feel a negative impact through job loss. Although the payment of taxes is deferred, significantly fewer jobs would have a much more detrimental effect, both within local markets and nationally. This outcome would be completely opposite of the stimulus that the economy – which some experts are saying is nearing the end of its current cycle – is dependent upon at this fragile state of the recovery.

Many commercial real estate brokers and investors remember a time not too long ago when the economy was uncertain, causing investors and their capital to sit on the sidelines, leaving sales at a standstill. Now with money and property movement in the market again, investors are becoming more swift and nimble when it comes to transactions, choosing options that generate more wealth over time.

The ability to reinvest 100 percent of equity builds cash flow and net worth significantly more than choosing to pay income taxes on properties after each transaction. It also compels real estate investors to continually exchange properties as they build equity. With the 1031 exchange remaining an available option to investors, the future of commercial real estate looks positive, evidenced by healthy sales activity benefitting the overall economy.


Keith O’Donnell

Keith O’Donnell is principal, Capital Markets Group, of Avison Young, based in Boca Raton, Fla. Contact him at keith.odonnell@avisonyoung.com.

Mark M. Rubin

Mark M. Rubin is vice president, Capital Markets Group, of Avison Young, based in Boca Raton, Fla. Contact him at mark.rubin@avisonyoung.com.

 

READ IT ALL:

http://www.ccim.com/cire-magazine/articles/324047/2015/11/1031-exchanges/?gmSsoPc=1

 

FROM ME:

Are you ready to sell your Commercial Building in Phoenix  –  Maricopa County , please call me.

http://walter-unger.com/are-you-ready-to-sell-your-commercial-building-in-phoenix-maricopa-county-office-retail-industrial-multi-family-please-call-me/

2

I am actively looking to build relationships with Real Estate Investors and Owner Users  for  multi-family, office, retail, industrial and land in Phoenix- Scottsdale-Tucson-Arizona.

http://walter-unger.com/i-am-actively-looking-to-build-relationships-with-real-estate-investors-and-owner-users-for-multi-family-office-retail-industrial-and-land-in-phoenix-scottsdale-tucson-arizona/

3

Why Phoenix?  This is a very interesting article, you should read it, amazing, there were only 350 K people living in Phoenix in 1950

http://walter-unger.com/why-phoenix-2/

  •  

Phoenix Commercial Real Estate and Investment Real Estate: investors and Owner / Users need to really know the market today before making a move in Commercial Properties or Investment Properties in Phoenix / Tucson / Arizona, as the market has a lot of moving parts today. What is going on socio-economically, what is going on demographically, what is going on with location, with competing businesses, with public policy in general — all of these things affect the quality of selling or purchasing your Commercial Properties, Commercial Investment Properties and Commercial and large tracts of Residential Land in Phoenix / Tucson / Arizona.  Therefore, you need a broker, a CCIM (Certified Commercial Investment Member) who is a recognized expert in the commercial and investment real estate industry and who understands Commercial Properties and Investment Properties.

I am marketing my listings on Costar, Loop-net CCIM, Kasten Long Commercial Group.  I also sold  hundreds millions of dollars’ worth of  Investment Properties / Owner User Properties in Retail, Office Industrial, Multi-family and Land in Arizona and therefore I am working with  brokers, Investors and Developers. I am also a CCIM and through this origination ( www.ccim.com ) I have access to marketing not only in the United States, but also international.  Click here to find out what is a CCIM:  https://en.wikipedia.org/wiki/CCIM

 

 

Reasons to Consider me for Commercial Referrals – I have the Knowledge and Experience                                                                                                                         

http://walter-unger.com/i-have-the-knowledge-and-experience-to-provide-the-best-service-to-your-clients/

    #

Click here to View My Listings and Profile

http://www.loopnet.com/profile/14101172900/Walter-Unger-CCIM/Listings/

#

Click here to find out what is a CCIM:

https://en.wikipedia.org/wiki/CCIM

#

Click here to view my website:

http://walter-unger.com/

#

Interactive Map Of All 10+ Unit Apartment Listings in Metro Phoenix

http://www.easymapmaker.com/map/28cb3b8b3206c377a6f282d980dc7974

#

Interactive  Metro Phoenix Map of New Apartment Construction by Completion Status

http://www.easymapmaker.com/map/955edc17e00b08ce270fb7afb1523cc2

#

Click her to join my mailing list :      

http://visitor.r20.constantcontact.com/manage/optin?v=001l2E62PqC4Z3sggwR_1M9aUmjrzvHWmSVEfy9MrVW6ULRJR3XWD1R_98ZLV5AVRdcHcxwR32LZvKqcYEkVDBKEwAuD87hIYmDX8GpVxXVwjc%3D

#

AZREIA Market Update | March 2016

https://azreia.memberize.net/clubportal/images/clubimages/2645/Market%20Update%20Files/2016/AZREIA%20201603%20Meeting.pdf

 

 

Walter Unger CCIM –  walterunger@ccim.net   – 1-520-975-5207  –  http://walter-unger.com

2016 Official Arizona Visitors Guide

Visit Arizona

Why Phoenix?  This is a very interesting article, you should read it, amazing, there were only 350 K people living in Phoenix in 1950

http://walter-unger.com/why-phoenix-2/

 

1

Timeline of Phoenix, Arizona history

 

http://en.wikipedia.org/wiki/Timeline_of_Phoenix,_Arizona_history

2

Phoenix, Arizona

 

http://en.wikipedia.org/wiki/Phoenix,_Arizona

 

3

Facts of Arizona – year 1848 to 2013

http://walter-unger.com/?p=9507

Feel free to contact Walter regarding any of these stories, the current market, distressed commercial real estate opportunities and needs, your property or your Investment Needs for Comercial Properties in Phoenix, Tucson, Arizona.

  •  

walterunger@ccim.net 1-520-975-5207

Check out my professional profile and connect with me on LinkedIn.

http://lnkd.in/bezpJ8t

Follow me on Facebook:

https://www.facebook.com/ungerccim

  •  

Follow me on Twitter:

https://twitter.com/Walterunger

Follow Me on Google+

https://plus.google.com/u/0/b/114560883588623379451/

 

  1. Interactive Map Of All 10+ Unit Apartment Listings in Metro Phoenix

http://www.easymapmaker.com/map/28cb3b8b3206c377a6f282d980dc7974

 

  1. Interactive  Metro Phoenix Map of New Apartment Construction by Completion Status

http://www.easymapmaker.com/map/955edc17e00b08ce270fb7afb1523cc2

 

 

Kasten Long Commercial Group tracks all advertised apartment communities, including those advertised by other brokerages.  The interactive map  shows the location of each community (10+ units) and each location is color coded by the size (number of total units). 

Click here for Map of Apartments for Sale (10+units)

  •  

 

Walter Unger CCIM, CCSS, CCLS

I am a successful Commercial / Investment Real Estate Broker in Arizona now for 20 years.  If you have any questions about Commercial / Investment Properties in Phoenix or Commercial /  Investment Properties in Arizona,  I will gladly sit down with you and share my expertise and my professional opinion with you. I am also in this to make money therefore it will be a win-win situation for all of us. 

  •  

Please reply by e-mail walterunger@ccim.net or call me on my cell 520-975-5207

 

www.Walter-Unger.com

 

Walter Unger CCIM

Senior Associate Broker 

Kasten Long Commercial Group

2821 E. Camelback Rd. Suite 600

Phoenix , AZ 85016

Direct:    520-975-5207   

Fax:       602-865-7461

walterunger@ccim.net

www.Walter-Unger.com    

www.KLCommercialGroup.com

View My Listings and Profile

Join My Mailing List

What is a CCIM?

Reasons to Consider me for Commercial Referrals

 

  •  

Delivering the New Standard of Excellence in Commercial Real Estate 

  •  
  • Commercial Real Estate Scottsdale
  • Commercial Real Estate Phoenix
  • Commercial Real Estate Arizona
  • Commercial Investment Properties Phoenix
  • Commercial Investment Properties Scottsdale
  • Commercial Investment Properties Arizona
  • Land Specialist Arizona
  • Arizona Land Specialist
  • Land Specialist Phoenix
  • Phoenix Land Specialist
  • Land For Sale Phoenix
  • Land for sale Arizona
  • Commercial Properties For Sale Phoenix
  • Commercial Real Estate Sales Phoenix
  • Commercial Properties Phoenix
  • Commercial Properties Arizona
  • Commercial Land Specialist Phoenix
  • Commercial Land Phoenix
  • Multifamily land Phoenix
  • Retail Land Phoenix
  • Industrial Land Phoenix
  • Land Commercial Phoenix
  • Land Retail Phoenix
  • Land Industrial Phoenix
  • Land Multifamily Phoenix
  • Industrial Land for sale Phoenix
  • Land Industrial
  • P
  • Investment Real Estate

 

Disclaimer of Liability

The information in this blog-newsletter is for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.