Video instructions and help with filling out and completing Can Form 4797 Concise

Instructions and Help about Can Form 4797 Concise

Most people are aware of the fact that when you sell a long term investments such as real estate or stocks you have to pay taxes and these taxes don't usually come cheap currently capital gains tax is 15% and California has its own capital gains tax of nine point three percent to put this in perspective if you bought a property for five hundred thousand and years down the line you sell the same property for a million dollars on that five hundred thousand dollar profit you have to pay a hundred and twenty one thousand five hundred dollars plus your cost recovery recapture that's a huge chunk of cash but did you know there's a way you can defer that not even have to pay a single penny it's called a 1031 tax deferred exchange or 1031 exchange for short a 1031 exchange is when you sell your property and buy another like-kind property within a certain time frame and follow specific rules now you have to note this is a tax deferred investment strategy what that means is that you will just keep rolling over what you owe in taxes to some future date if you ever decided completely abandon investing in real estate altogether you're going to have to pay it all back the idea though is to continuously roll it over indefinitely until you pass away now that we have all that explained let's get to how a 1031 exchange works shall we let's say you bought a property ten years ago for a million dollars and today you can sell the exact same property for two million dollars the first step that needs to be taken when doing a 1031 exchange is the process of finding a good qualified intermediary or a Qi Qi is a company that will be the middleman throughout the entire 1031 exchange process my first tip on this do not shop around for the cheapest Qi find a reliable company that has been doing this for years and pick them even if it costs a little bit extra this is not something you want to bargain shop for once you find the qualified intermediary you need to inform them of your plans and that's your in escrow with the property now that everyone is in the know here's where it gets a little tricky there are two key timeframes you have to keep track of with a 1031 exchange from the date you sell your property you have a 45 day time period to identify a new property or properties the second is that you have a hundred and eighty days to completely close on the new property you identified or if you identified multiple ones again this is from the start date that you sell your property one thing that must be made clear up front is that these dates are non-negotiable this means that if you can't identify a property within 45 days the 1031 exchange is dead and taxes are automatically do when you file your tax return if you can't close because of financing issues without a 180 day timeline again the 1031 exchange isn't valid with that being said let's get into some of the details first the 45-day time period within this 45 day time period you can choose up to three different options the first and most common option is the three property rule the rule is that you can identify a total of three properties at any price most investors use this option because once they sell their property they upgrade to an even larger one however once in a while investors want to sell one property and buy multiple smaller properties this is where the second option comes in or the two hundred percent rule the second option is that you can identify an unlimited amount of properties but they can total no more than 200 percent of what you just sold your property for in our example we sold our property for two million dollars we can choose as many properties as we want so long as their total value doesn't go above four million dollars the third option which is sometimes referred to as the 95 percent closing rule can be a bit tricky it's similar to the tuner percent rule where you can pick as many properties as you want with one major difference there's no price limit you can pick for 10 or even 20 properties totaling an infinite amount of value the catch is you must close on at least 95 percent of them this is usually best left to the super savvy investor who is buying everything all cash once you get the identification rolls down the 180-day closing period is fairly straightforward so now let you know the timeline rolls how does it all work the way it works is just like a regular sale but with a koala five intermediary acting as the go through person once the seller has their money in escrow and everyone has signed their paperwork to transactions will take place simultaneously instead of selling directly to the seller you will sell to the QI who holds title the QI will now sell your old property to the new buyer immediately the funds from the buyer are then given to the QI to hold this qualified intermediary acts as your trusted holder for your funds during the 1031 exchange time period throughout the process you are not allowed to touch any funds if you decide to pull any funds out it's considered boot and will become taxable ii it leaves the QIS control now that we've gone over all the basic rules of a 1031 tax deferred exchange let's get into some of the more common questions by far the most common question I get is in regards to the like kind statement if someone sells an apartment do they have to buy another apartment or can