I live in Bay area, age 32, TC: ~320K. My investments are all in stock market. I want to buy a home in Bay area in the future, but it is expensive. I'm thinking of buying multiple properties in Midwest over the next 10 years, and them use some or all of them with a 1031 exchange to avoid taxes, and buy a house in Bay area. Has anyone tried this? Any barriers to it? I hear 500K limit for 1031 exchange? Does that mean, if I have 5 midwest houses of $300K each, and if I want to buy a 1.5M house in Bay area using 1031 exchange, I can only use $500K from midwest properties with no tax consequence, and I have to pay taxes on the remaining $1M? Also, if you were to buy midwest properties over the next 10 years, would you prefer to buy individual houses (buy one by one, e.g. one each year), or say buy an apartment of 10 houses? Are there any stats on which one would be more profitable? And which one is easier to use when using 1031 exchange to buy another house in Bay area?
Bro shush. Can you not create more competition for me?
Where are you buying splunkie
Anything between the capital and Tahoe.
I don’t think there is any limit on 1031 exchange profits but you can only roll it into another investment property not a primary home. You may need to rent out your Bay Area home purchased via the exchange for at least a year before moving in. The 500K limit on profits is when you sell your primary home. Not for 1031 exchange.
Consult a tax guy for your question. Patterson, CA - almost doubled in 5 yrs Roseville, CA Granite Bay, CA Folsom, CA Morgan Hill, CA The thing is that if you are looking for appreciation to cash out then buy in an area with rapid appreciation
How do you find these locations?
If I understand your strategy right you have 2 assumptions that may not be true: 1) Your property will increase in value and 2) 1031 will exist when you sell. While #2 will likely not happen due to resistance from wealthy folks, #1 is a very likely scenario. Also, check with specialist on 1031 because I understand it to be 1 Propery to another only.
1031 will exist, yes. If it was easy to remove it, Biden would have it in one of the proposals by now. Property increase in value => Midwest property appreciation is low, I understand that, in the ballpark of 1-4%, with exceptions. I can still use them to generate cashflow by renting them, which will pay the mortgage of itself. Any suggestions for appreciating properties with low price, e.g. much lower than those in Bay area? Austin, Texas (which spiked already)? Anywhere else?
You need to find a place where rent will cover 90 to 95% expense. Else you will buy a place, put down the down payment and spend a good 10k every year to maintain it. When you sell the place, assuming your 1 to 4% hike in Midwest you will end up claiming losses and there will be no need for an exchange Start with talking to a tax consultant Start with talking to a realtor who specializes in investment properties Start with doing your own research and income expense models using data on Zillow Redfin etc All the best !
Biden admin discussing eliminating or restricting the 1031 loophole. Do it now before law changes.
I live in the Midwest and am a real estate investor besides my tech career. Real estate is an awesome way to accumulate wealth. I’ve done a couple of 1031 exchanges (which have been fantastic!), but what you are talking about doing is difficult. While technically it might be possible, there are restrictions on timing and prices that you would be restricted to. Also the more moving parts the more something can go wrong and the more you will pay in fees to others to help facilitate such a transaction. Also, where did you hear of a 500K limit for a 1031 exchange? That is not true. I think you are getting confused about the 500K no-tax consequence. That is for your primary residence. When you own investment properties that is a completely different thing. You can’t mix the two. So you can’t 1031 into a home that you end up using for your primary residence. In my experience, you should be investing both in investment properties and in a primary residence. (I know it’s hard but figure out a way… use the leverage of the banks $$$!) Best of luck!
Hi there! I am looking for a 1031 exchange for a property I held for 20 months, the 1031 QI says that there is a minimum of 24months hold requirement which I am not seeing on the IRS website, thoughts?
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Buy properties in greater Sacramento area instead. Your appreciation will be much higher than Midwest
I will keep this suggestion in mind. Follow-up question in the original post is, if I have multiple properties in wherever (you suggest Sacramento) with total worth of > $500K, if I sell there properties to buy a $1.5MM house in Bay area using 1031 exchange, will that exchange only cover first $500K and prevent taxes from that amount, but will I pay taxes on the remaining $1MM?
Sacramento properties are still expensive