Do you know how many taxes there can be on an investment real estate sale? Depending on the asset type, there are as many as five different taxes. Capital gains are no longer just 15 percent, and investors seek ways to avoid taxes on investment real estate sales.
What Is a 1031 Exchange?
A 1031 exchange allows investors to sell investment real estate and exchange it for new investment property to avoid all taxes. Doing so is advantageous in many ways.
The typical 1031 transaction includes multiple taxes and rates such as:
- Income Tax (if held short term)
- Capital gains (15-20%)
- Recapture tax (25%)
- Obamacare tax (3.8%)
- State tax (3-9%)
A good 1031 exchange candidate:
- Has owned a property long-term (with or without appreciation)
- Has depreciated property (avoid depreciation recapture 25%)
- Owns rented property and will be subject to capital gains and state taxes.
Reasons to do a 1031 exchange:
- Diversify/more cash flow
- Buy a larger/more profitable property or unit
1031 exchanges can be extremely flexible for the investor. There are several different kinds of exchange transactions you can make, depending on your situation and goal. With planning and proper help, you can avoid capital gains taxes on investment real estate sales. You can also preserve more capital to reinvest. Are you interested? Midland 1031 can help you plan the transaction and start saving today.
What Is a Self-Directed IRA?
A self-directed IRA lets you buy alternative assets for your IRA. These alternative assets include real estate, precious metals, private equity, stocks, farmland, and much more. These plans are fully controlled by you, allowing the choice of assets that you think will be successful. All income returns to the IRA on a tax-sheltered basis including rent, sale proceeds, and gains. Alternative asset investments can be a great way to build retirement income.
Do you feel confident owning tangible investment real estate? Perhaps you’re familiar with renting single or multi-family homes. Or, maybe you have a knack identifying unimproved property that has potential for development. These are just a few examples of real estate-related assets allowed in self-directed plans. All returns on investments in your IRA are tax-sheltered. So, if you’re looking to diversify your retirement portfolio, a self-directed IRA may be perfect for you.
What you can do inside your IRA:
- Own investment real estate including houses, condos, land and commercial property
- Lend money via a note from your IRA
- Invest in private LLCs and private stocks
What you cannot do in a self-directed IRA:
- There is no personal use of property or assets owned by your IRA
- Cannot rent, sell to or buy real estate from lineal ascendants or descendants.
- You cannot remodel or do construction on property yourself
- Purchase life insurance or collectibles
For more information regarding 1031 exchanges, contact Midland 1031.
For more information regarding self-directed IRAs or real estate IRAs, contact Midland Trust.