The Duplex Store

We routinely help Investors purchase property in Austin using this fantastic tax break! There are some restrictions and timing is pinnacle, but if you set yourself up ahead of time to do this, we can make it happen seamlessly.  Please give us more details on your situation to let us better serve your goals.

What exactly is a 1031 Exchange?
Why should I use one?
Sounds good, does my property qualify?
What are the time and financial restrictions?
Who handles this type of transaction?
What if I can't go through with it?
Tax return date and your 180 days! It's tricky!

What exactly is a 1031 Exchange? - ^ -

A 1031 exchange is a commonly used tax deferment that allows you to roll-over ALL of the proceeds received from the sale of an investment property into the purchase of one or more similar "like-kind" investment properties. Sounds complicated but it's really easy.

The day you sell your initial investment property, the final net proceeds you receive are transferred to a 1031 Exchange Accomodator -- who holds them in escrow until they are used to buy the new property. In order to receive this tax break, a third party (the Accomodator) has to hold the money, you can't touch it until you buy your new property.

Remember, this only works for investment properties. You can't buy or sell your personal residence in this program. Why? Well, it's a loophole that we're using. We can only purchase "like-kind" properties.

For example, you have 1 rental house that you would like to sell. You can take the proceeds from the sale and apply them to any type of real property that is income producing such as a duplex, fourplex, commercial building or even another rental house. The best thing is that you can sell one property, and buy several others in a cheaper market! There's no limit on the number of like-kind properties you buy, as long as your new purchases add up to at least the amount you made on the sale of your rental house. You see, you MUST spend all the proceeds in order to do the program. Here's the numbers:

Final sale proceeds from my rental house in Phoenix came out to $300,000. I go to Austin and identify 3 rental houses totaling $380,000. I put $100,000 from my proceeds into each of those 3 rental houses in Austin. Leaving my final mortage on 3 houses totalling only $80,000! Investors eventually develop several million dollars worth of real estate using this simple program by hopping from market to market across the USA.

	Old Property $
goes thru 1031 Exchange Process
New Property A	New Property B	New Property C

Why should I use one? - ^ -

Before answering this, consider the alternative of NOT using one... If I sell one of my fourplexes for $500,000, I will net perhaps $300,000 after all expenses are paid. I would normally have to pay nearly $100,000 in capital gains tax!!!! That's insane! That's more money than my family makes in a whole year just in taxes! A 1031 Exchange allows me to use the full $300,000 I made from that sale to buy more income-producing property anywhere in the USA without having to pay taxes on it (for now at least). I could sell 1 fourplex in California and buy 5 fourplexes in Austin!

If you did not use this program, using the above example, I would effectively lose $100,000 of equity I could've put into other properties. That alone is scary, because equity always rises, so that amount would double over 10 years in most markets. A 1031 Exchange is truly the best choice for moving your money in real estate.

Sounds good, does my property qualify? - ^ -

If you have rental property or income-producing real estate, yes, it qualifies. Even a "lot of land" can be sold and the proceeds rolled into a regular house-type property. You cannot use your existing house if you currently live in it, or if you have lived in it within two years. You can only sell a "previous personal residence" if you've moved out of there for over 2 years.

What are the time and financial restrictions? - ^ -

Before you sell your property, you need to know exactly what your timeline is. The only two numbers you need to remember are 45 and 180. 45 days to identify and 180 days to close:

1) Upon the closing of your rental house, you have 45 days to identify up to 3 new rental properties. This can be perhaps 1 fourplex and 2 duplexes, or simply just 2 other rental houses. The amount of properties doesn't matter, the final price does -- it must add up to at least the amount of what you made from the sale. Going over is OK, but you can't be under. 45 days is plenty of time, there are no extensions if your declared properties fall through. So by all means, start immediately, don't wait until the last 5 days!

2) You and your Buyer's Agent will develop the list of properties you want, and possibly write contracts on them. This list must be submitted ASAP to the 1031 Exchange Accomodator you're using. Most sellers love to work with 1031's because they know that your a serious investor, and that your money is guaranteed and available. You may receive better treatment from certain seller's because of this.

3) You must close on ALL of your new properties within 180 days. That's plenty of time, considering most closings are done in 30 days. Commerical purchases take longer, usually 60-90 days.

4) Financially speaking, your new purchases need to add up to at least the amount you made off the sale of your old property. AT LEAST is a requirement. You can do 1 of 2 things with your money: pay cash for 1 property and buy it free and clear, or, use that cash to put perhaps 30% down on multiple properties and carry multiple mortgages. In most cases that I deal with, people tend to want to maximize their buying power by purchasing 3 or more properties and putting 10-20% down on each one using their 1031 account proceeds. This is perfectly fine, in fact, I recommend it. This is how the rich get incredibly rich - using this method is like a pyramid of wealth, constantly accruing more and more property.

Who handles this type of transaction? - ^ -

A 1031 Exchange Accommodator is an independent 3rd party entity that holds the money you make from a sale, and transfers it to help you buy more property. You have to use one to qualify for this, Uncle Sam won't do it any other way. Most Accomodators charge a flat fee for this, starting around $700 and going up for the number of properties you buy / sell. Believe me, the money they charge is insignificant compared to the cost of taxes if you didn't do the program. Accomodators do thousands of transactions per year, they are experts in both real property and tax issues.

QUESTION: "But what if I'm in California and I want to buy property in Austin... Do I have to use a 1031 Exchange Accomodator in Texas?" Good question, the answer is NO. You can use ANY accomodator you want, anywhere in the USA, to buy property --- well, anywhere! I would however recommend that you use an accomodator with an office in or near the city you plan on buying in, but it's not required.

What if I can't go through with it? - ^ -

If you end up starting this process and for some reason or another can't go through with it at all or partially, the money that you have leftover from the exchange will be taxed as cash at the appropriate tax bracket you fall into.

Tax return date and your 180 day period! - ^ -

You actually have 180 days or until the day your tax return is due, whichever comes first. To ensure you have the full 180 days to complete your exchange, simply file for an extension on your tax return. Wait until your exchange is complete to file your tax return. If your 180 days is up after April 15th, you can file for a tax extension with IRS Form 4868.

OK let's get started!

Just mailto: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it or call me (512) 775-1780, I'll be happy to help you through this process and represent you in purchasing valuable real estate in the Greater Austin area.