Real Estate Investors Can Defer Taxes with a 1031 Exchange

Beverly Hills real estate

Paying taxes on capital gains for property transactions has always been a hindrance to those involved in real estate investment. Why should investors pay taxes on profit from real estate transactions if they’re putting the profit right back into some other real estate transaction?

The answer: They shouldn’t.

That’s exactly why the IRS created 1031 exchanges: to allow for tax deferment on profit that is reinvested immediately. Notice it’s a deferment, not a credit or a reduction. It does have to be paid eventually, just not at the time of sale and not until the money is taken out of the property, at which point it is taxable. Eager to learn more, I found some info on 1031 exchanges at 1031.org.

What Is a 1031 Exchange?

Simply put, a 1031 exchange is a method of deferring the tax on capital gains until some point in the future, according to 1031.org. They’re called Section 1031 exchanges because Section 1031 of the Internal Revenue Code states that “no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment.”

Section 1031 was created to encourage reinvestment of sale proceeds of property into similar property. Obviously this stimulates business and growth. As long as the investor continues to put profit back into more property, taxes are not owed.

This all makes pretty good sense. Let’s say I invest in a house in Beverly Hills that costs me $100,000 (I WISH!). I put $50,000 into the house and put it on the market. It sells for $250,000. My $100,000 profit, or capital gain, is then put into another property that I buy to fix up and sell. This continues, and all of my capital gains are deferred with a 1031 exchange UNTIL I sell my last property and enjoy my profit. At that point, I pay all taxes owed.

Frequently Asked Questions About 1031 Exchanges

What is the benefit of a 1031 exchange versus just selling property?

A Section 1031 exchange is one of the few ways investors can defer taxes due on the sale of property (assuming it qualifies for a 1031 exchange). Deferring taxes allows investors access to the money that would otherwise be paid in taxes, allowing them to invest in another property.

What are the general guidelines to follow in order to defer all the taxable gain?

The IRS is very clear on this. The value, equity in and debt on the new property must be equal to or greater than the value of the property being sold for an exchange to be valid. This is even more important – ALL of the profit from the property sale MUST be used to buy the new property. If even a tiny percentage of the profit is used for something else, the 1031 exchange is not valid.

If there is already a contract to sell the property, is it too late to start a tax-deferred exchange?
No, as long as there has not been a transfer of title or a closing on the sale of the property, a tax-deferred exchange can still be arranged. Once the closing occurs, it is too late.

Can the replacement property eventually become the investor’s primary residence or vacation home?
Yes, but Section 1031 has holding requirements (minimum length of time the new property must be owned) that must be met prior to changing the primary use of the property. According to 1031.org, the IRS has no specific regulations on holding periods (though a minimum of a year is recommended), and “if the owner later on wants to take advantage of the home owner’s exemption (up to $250,000 or $500,000 for a couple), there is now a five year holding period requirement.”

Finally, remember that if you’re a real estate investor or considering becoming one, now is still a great time to do so. Mortgage rates are still very low and property values, though trending up, are also still very low in many parts of the country. As always, please let me know if you have any questions.Happy investing!

If you’re looking to buy, sell, or lease residential or commercial real estate in Los Angeles, please contact me direct at jkryukova@gmail.com or 310.402.8181.

New Listing: Great Location Near “The Grove”

127 N. Gardner St. Los Angeles, CA 90036

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Offered at $1,279,000

3 Bedrooms

2 Bathrooms

2,312 Sq. Ft.

5,984 Sq. Ft. Lot

THIS AUTHENTIC 1926 TWO-STORY 3-BEDROOM/2-BATHROOM SPANISH HOME IS LOCATED IN ONE OF LA’S HOTTEST NEIGHBORHOODS: IT’S AROUND THE CORNER PAN PACIFIC PARK AND JUST DOWN THE STREET (BETWEEN BEVERLY OR 3RD)FROM THE GROVE

SET ON A KNOLL WITH A GATED DRIVEWAY BACKYARD, THIS GORGEOUS HOME CONTAINS ENVIABLE DESIGNER FINISHES INCLUDING IMPORTED ANTIQUE FRENCH TERRACOTTA TILES, TURKISH TRAVERTINE, & HAND-PAINTED FLOURISHES. THE HOUSE’S DRAMATIC ENTRY FOYER OPENS TO AN IMPRESSIVE STEP-DOWN LIVING ROOM WITH A TWO-STORY WOOD BEAMED CEILING, REFINISHED ORIGINAL WOOD FLOORS, STONE FIREPLACE, AND CLASSIC SPANISH PICTURE WINDOW LOOKING OUT OVER THE GRASSY FRONT YARD.

THE RESIDENCE’S FORMAL DINING ROOM IS LIGHT, BRIGHT, AND EXQUISITELY ELEGANT. A LARGE CHEF’S KITCHEN SPORTS A VERSAILLES-PATTERNED TRAVERTINE FLOOR, FARM SINK, JERUSALEM GOLD LIMESTONE COUNTERTOPS, AMPLE CUSTOM CABINETS (WITH SELF-CLOSING DRAWERS), PREP SINK (PERFECT FOR FEEDING THE PUPS, TOO), AND TOP-OF-THE-LINE APPLIANCES (INCLUDING FISHER & PAYKEL DUAL-DRAWER DISHWASHER).

THE HOME’S FAMILY ROOM FEATURES A BUILT-IN ENTERTAINMENT CENTER AND SLIDING FRENCH DOORS TO THE BACK YARD.

THERE ARE 2 LARGE BEDROOMS UPSTAIRS (THAT SHARE ONE BATH), ONE OF WHICH HAS A CHARMING BALCONY AND WALK-IN CLOSET. THERE IS ONE BEDROOM (WITH DIRECT ACCESS TO A BATH ON THE GROUND LEVEL.

IT’S AN ENTERTAINER’S PARADISE OUTSIDE IN BACK: A PERGOLA-COVERED PATIO, LOUNGING & DINING AREAS, POOL AND SPA, AND OUTDOOR SHOWER.

WITH A WALK SCORE OF 97 (OUT OF 100), HEAD OUT ON FOOT TO THE FARMER S MARKET, SHOPPING ON BEVERLY, SOME OF L.A.’S BEST RESTAURANTS ON 3RD, AND THE EXPANSIVENESS OF PAN PACIFIC PARK. EVEN LACMA IS A STROLL AWAY!

Please contact me at (310)402-8181 begin_of_the_skype_highlighting (310)402-8181 FREE  end_of_the_skype_highlighting or Jkryukova@gmail.com for more information, questions, showings.

Home Prices Continue Rising, Sales Steady

West Hollywood Properties

Home sales continue to seesaw—while levels increased from the previous year, they dipped from previous month. Following historic seasonal trends, October home sales edged 2.8 percent lower than September, but still pushed 2.2 percent higher than sales in October 2012. Median home prices were 11.9 percent above prices seen last October.

“What we’re seeing now are predictable seasonal cycles, which is just another sign that the housing recovery is bringing us back to a more normal market,” said Margaret Kelly, CEO of RE/MAX. “Home sales are expected to slow down during the holidays and winter months before returning to the next growth cycle in the spring.”

Home sales have experienced year-over-year increases in both sales and prices for 21 months now. The median price of all homes sold in October was $179,950. Inventories of homes for sale were 12.2 percent lower than the levels in October last year. For the last 29 months in a row, inventories have declined at a slower rate.

The October inventory drop is half of the annual loss seen as recently as June. At the current rate of sales, the number of months required to sell the entire inventory of homes on the market was 4.9. A 6-month supply is recognized as a balanced market with an equal number of buyers and sellers.

For the most part, normal seasonal trends are responsible for slowing month-to-month changes in home sales. Of the 52 metro areas surveyed in October, 35 reported higher sales than in October 2012, with 19 reporting double-digit gains. New York, New York experienced gains of 32.6 percent; Trenton, New Jersey experienced gains of 32.5 percent; Anchorage, Alaska experienced gains of 24.2 percent; Philadelphia, Pennsylvania experienced gains of 18.2 percent; Wilmington, Delaware experienced gains of 18.1 percent; and Manchester, New Hampshire experienced gains of 17.1 percent.

In the month of October, homes stayed on the market for an average of 66 days. This is one day higher than the average seen in September, but is 16 days lower than the average seen in October 2012. An average this low is the direct result of continued high demand and a reduced inventory of homes for sale, according to RE/MAX.

The housing market has been plagued by a low inventory environment, but for seven consecutive months, inventory has declined at a slower rate than during the same month of the previous year. While not yet adding inventory, the situation is improving. In October, there were 5.1 percent fewer homes for sale than in September, and 12.2 percent fewer than in October 2012. At the rate of home sales in October, the Months Supply of inventory was 4.9.

If you’re looking to purchase, sell, or lease commercial or residential real estate please contact me at (310)402-8181 or Jkryukova@gmail.com

Please visit my website for my information and properties: www.juliekproperties.com

source: dsnews

New Listing Alert: Stunning Spanish in the Grove Area of LA $1,749,000

435 N Martel Ave

435 N. Martel Ave. Los Angeles, CA 90036 (Walking distance to The Grove – lovely location)

3bedrooms/3.5bathrooms/2,500 Sq. Ft

ASKING PRICE: $1,749,000

Please contact me at jkryukova@gmail.com or call (310)402.8181 for more information or to schedule showings:

This rebuilt, remodeled, redesigned three-bedroom, three-and-a-half bathroom Spanish residence in the heart of The Grove/Melrose area sets a high standard for the neighborhood. Walk to everything or stay home and enjoy a sequestered life behind gates and mature ficus hedges. Amazing finishes, fixtures and top-of-the-line stainless-steel appliances reflect a Hollywood era gone by, but provide a complete set of today’s most sought-after elements–including a built-in Miele espresso machine.

An elegant light-filled living room with extra tall and wide picture windows, wood-burning fireplace and barrel ceiling offers ample room for formal entertaining.

Just outside the living room is a lofty combination of rooms in the center of the house. A chef’s eat-in kitchen, dining area, media room and powder room form an axis of activity for residents desiring an open floor plan conducive to contemporary living and entertaining.

The chef’s kitchen features Caesarstone counter tops, custom Downsview cabinetry, a professional-grade Wolf range (multiple burners + griddle + grill + double ovens) and a stainless-steel Wolf hood. The room’s over-sized center island provides that hard-to-come-by space for cooking and entertaining while also keeping an eye on the game on the media room’s flat-screen television. Upper and lower cabinet lights and recessed halogens provide multiple options for mood lighting. Stainless double sinks with filtered water system, an appliance lift door (for microwave or toaster oven), Miele dishwasher and Sub-Zero refrigerator/freezer make this kitchen one of the best in the area.

Bonus alert! A designated media/family room in three-bedroom Spanish homes around The Grove is a rarity. This room adjoins the dining area and provides a sight line into the kitchen area. Five-speaker surround sound makes watching screeners a theatrical experience. Custom floor-to-ceiling blackout draperies (throughout the home) convert this area into a true home theater.

Two guest suites (each with their own sparkling bathrooms) and a massive master suite with a huge spa-like bathroom and a giant walk-in closet provide plenty of private living space. The master bath has an over-sized step-in rain shower, a separate extra-deep tub, Carrara marble counters, Walker Zanger and Ann Sacks tiles, custom wood Downsview cabinetry, mirrors, double sinks, in-wall speakers and a TV monitor. Can you say “Mandarin Oriental” or “Ritz-Carlton”?

The master bedroom’s walk-in closet/dressing area has a floor-to-ceiling built-in closet system by California Closets including hanging areas, dressers and storage cabinets. Each of the other two bedroom closets also has built-in storage systems. One of the two guest rooms has a built-in “office wall” with upper and lower custom wood cabinetry by Downsview and a Caesarstone counter/desktop, a perfect work-from-home or study area.

A laundry room (with king-sized side-by-side front-loading washer/dryer) provides built-in storage shelves for cleaning supplies. A media cabinet and linen cabinet augment the house’s storage components.

The home has a security system, Harman/Kardon sound system (with individual room-by-room volume controls), climate control, art lighting, double-paned E-glass windows and French doors. A “California basement” houses some of the home’s systems, as well as additional long-term dry storage.

Outside is a restful, private backyard retreat with a pool, waterfall and spa. A shady, luxury hotel-style cabana with a vaulted ceiling creates opportunities for an outdoor living/dining room, game room or carport.

A driveway gate can be operated electronically and provides access to off-street parking. There is additional off-street space for two cars in front of the gate. Access to the grassy hedged-in front yard and front door is through an electronically-secured pedestrian gate.

This home is a rare example of an extensive renovation done right. Impeccable attention to detail and not a single thing to change. Move in, unpack and enjoy California indoor/outdoor living at its best.

NOTE: Assessor’s interior sq.ft. is 2,300. A recent floor plan draft from R.E.S.T. calculates interior sq.ft. at 2,439. Outdoor cabana is not included in these calculations. [Buyer to verify square-footage.]

Year-over year US home prices up sharply in November

U.S.  home prices in November extended their steady recovery from the housing bust,  rising 7.4 percent compared with a year ago. It was the biggest year-over-year  increase in 6½ years.

CoreLogic,  a private data provider, said Tuesday that prices also rose 0.3 percent in  November from October. The month-to-month figures are not seasonally adjusted.  CoreLogic compiles its indexes by tracking sales of the same homes over time,  using data on sales in all 50 states.

The  gains in home prices have been widespread across most of the country. And  CoreLogic forecasts that prices will increase 6 percent this year.

Prices  in November were higher than in November 2011 in all but six states. And only 13  of 100 large cities that CoreLogic studies reported year-over-year price  declines. That was down from 20 cities in October.

The  sharpest increases were in Arizona, Nevada and Idaho. North Dakota and  California rounded out the top five.

Steady  price increases are helping fuel the housing recovery. They’re encouraging some  people to sell homes and enticing would-be buyers to purchase homes before they  get more expensive. Rising prices also reduce the number of homeowners who owe  more on their mortgages than their homes are worth.

“All  signals currently point to a progressive stabilization of the housing market and  the positive trend in home price appreciation to continue into 2013,” said Anand  Nallathambi, CEO of CoreLogic.

Despite  the gains, home prices nationwide are still nearly 27 percent lower than in  April 2006, when prices peaked during the housing bubble.

Some  of the biggest gains have been in states that were hurt the worst. Prices in one  of them, Arizona, have jumped nearly 21 percent in the past year, the most of  any state. But prices in that state are still nearly 40 percent below  their peak.

And  prices in Nevada have risen 14.2 percent in the past year but remain 53 percent  below peak levels.

The  states where prices continue to fall include Delaware, where they are 4.9  percent below a year ago, and Illinois, down 2.2 percent. Connecticut, New  Jersey, Rhode Island and Pennsylvania are also reporting declines.

Prices  rose 24 percent in Phoenix in the past 12 months, the most of any large metro  area. Riverside-San Bernardino, Calif. was next with a 9.7 percent rise. It was  followed by Los Angeles, where prices rose 8.4 percent.

Source: Sfgate.com