Video instructions and help with filling out and completing When Form 4797 Exchanges

Instructions and Help about When Form 4797 Exchanges

The 1031 exchange tax-free real estate investing I'm Phil I see freedom intercom I'm a full-time real estate investor real estate mentor and coach to many of the most successful real estate investors across North America and in this video I'm going to introduce to you and take you in depth into the subject of the 1031 exchange 1031 exchange is a section of the united states tax code you guessed it section 1031 which describes how a real estate investor can buy a piece of real estate for intent of investing in that and then after a couple of years they can resell that property and whatever gains they made those gains are not actually taxed their tax deferred if you will and that money can be used but it must be used to buy another property so let me try to illustrate this it would be like you owning a house and then you'd have to have it as a rental and let's say you've owned it for at least two years um you could sell this house now let's say when you bought it let's say you bought it for $80,000 but let's say it's been two years later and you are going to sell it for a hundred thousand so you have a gain of twenty thousand now these days there are several taxes that could play a role in this twenty thousand dollar gain obviously we have what's called capital gains tax capital gains tax but you also may run into depreciation recapture if you are uh claiming depreciation on that property when you hound it another thing is you may have local to your state you may have additional taxes there and also if you make over $250,000 a year you may run into what's called the Obamacare tax which is an additional 3.8 percent of whatever the game was so there can be significant taxes hitting your twenty thousand now maybe your whole intent in selling this was to buy the property maybe you wanted to go from a single-family home maybe you wanted to go to - a duplex I'm gonna fake - little that's not a new place looks like but there you go it's got two doors right so you want to go from there there well with the 1031 exchange what you can do is you can take all twenty thousand dollars and put it into here and then what happens is you didn't have to pay any tax on the twenty thousand so long as this transaction here was done through a 1031 exchange intermediary now you can get real exciting with this this concept all right let's say for example you own four houses and I'm going to use a monopoly analogy here because people recognize that what you could do is you can sell those four houses into one big red hotel local color partner complex right so you could do this to the 1031 exchange you can sell each one of these and whatever the gains were could all get poured right into here and that would be quote tax-free now technically it's tax deferred at some point if you ever ended up selling them the big red apartment building if you sold that of the normal way you didn't do a 1031 exchange there would be the worst recaps from all those taxes all right but a lot of people and if you want to hold an apartment building for the long haul which you may end up doing if you want to pull some cash out of there as you would do what's called a refinance so you could actually pull out some extra cash tax-free again does that make sense so a couple of things that I've shared here are important to point out number one the intent needs to be as a rental property so if you're flipping properties which I personally do a lot of um if you're flipping properties this 1031 exchange just ignore it because it doesn't apply to you this is for those that are going to own rental property I'm gonna give you some mug some rules of thumb that can help you get a better understanding of this alright here's the first thing because you're probably thinking this is almost too good to be true right well there are a couple of things that you've got to keep in mind the first thing is going to be what's called the net selling ice net selling price this is a big one so we're going to go back to our little green house here for a second so you bought this house for 80,000 an example but you're selling it for a hundred thousand okay well the new house or duplex or whatever you're going to buy the new one you're going to buy that needs to be at least a hundred thousand if not more so you can't take view and I got a lot of markers going here remember we had talked about the idea of a twenty thousand dollar gain so that twenty thousand you couldn't use that to buy a single-family home free and clear for twenty thousand now then work that way you have to buy something that's at least that size if not bigger now it doesn't have to be one property it could be it could be three properties if it's more than three properties then them actually can do is two hundred percent of whatever this was so if you were going to buy a bunch of single-family home vacant lots for example you could buy more than three but the total amount couldn't go any more than two hundred thousand sorry if I'm going to be confusing there again you can tell there are some rules here but let's get back to the net sign price so it needs to be at least a hundred K