In today's race to achieve the best returns, it is important to stay informed of what the best options are available to you when it comes to investing.  Why not turn to what you know best and invest in Florida real estate.  There are tax strategies that are geared specifically for the savvy real estate investors.  These strategies allow you to diversify your portfolio while deferring or eliminating capital gains taxes.

Dave Owens

One such strategy is the 1031 Exchange.  A 1031 exchange allows you to sell a piece of investment real estate and defer the capital gains taxes by purchasing another piece of investment real estate of equal or greater value.  As you already know, long-term capital gains are 15% for properties held for more than 1 year.  (This rate could potentially increase in the coming months)  However, the majority of investors do not take into consideration that some states may have a state income tax ranging from 4% to 7%, and that there is also a recapture tax of 25% for any depreciation taken on the investment property.  A 1031 exchange allows you to avoid all of these taxes.  It gives you more leverage when you are ready to purchase your next property because 100% of the proceeds are rolled over rather than what is left after taxes. 

With the current market, another option that has grown in popularity is the Reverse 1031 Exchange.  This strategy allows you to purchase your replacement property prior to selling the property that you currently own. 

1031 may sound like a complicated endeavor, but in actuality, it is pretty simple.  There are some basic rules that you should be aware of when doing an exchange.  First and foremost, it is always recommended that you consult your tax advisor before making any decisions.  Once you have determined that a 1031 exchange is the best option for you, it is important to keep in mind the following rules:

As you can see, these rules are simple and straightforward. 

 

Another option to consider is a Real Estate IRA. It is technically a Self-Directed IRA that owns Real Estate.  With a Self-Directed IRA the real estate in the IRA would need to be held for investment purposes, there could be no personal use. All income would flow back to the IRA and all expense for the real estate would need to come out the IRA.  The benefit is there are no taxes on gains inside an IRA.  Self-Directed IRAs can also invest in notes, LLCs, gold and more.  You would need to invest your IRA with an IRA custodian or administrator that holds alternative assets. The opportunity to grow your retirement savings can be exponential for a knowledgeable investor.  No one knows what the future holds so now is the time to take your financial future into your own hands.

  

Dave Owens, CPA, CES is the President of Midland IRA and 1031.  If you would like to learn more about 1031 exchanges or Self-Directed IRAs, go to our website at www.midlandira.com and download one of our detailed guides. Dave can be reached at 239-333-1031. Please call if you have any questions.