{"id":10531,"date":"2024-01-16T00:39:26","date_gmt":"2024-01-16T00:39:26","guid":{"rendered":"https:\/\/imsfund.com\/?p=10531"},"modified":"2024-01-16T00:39:26","modified_gmt":"2024-01-16T00:39:26","slug":"our-rental-tripled-in-value-heres-how-were-using-a-1031-exchange-to-avoid-a-massive-tax-bill","status":"publish","type":"post","link":"https:\/\/imsfund.com\/index.php\/2024\/01\/16\/our-rental-tripled-in-value-heres-how-were-using-a-1031-exchange-to-avoid-a-massive-tax-bill\/","title":{"rendered":"Our Rental Tripled in Value\u2014Here\u2019s How We\u2019re Using a 1031 Exchange To Avoid a Massive Tax Bill"},"content":{"rendered":"<p> <br \/>\n<\/p>\n<div :class=\"{ 'hidden': $store.proContent.showFullPrompt() }\">\n<section class=\"px-4 relative border border-slate-200 mobile-toc lg:hidden\" x-data=\"{open:false}\">\n<button x-on:click=\"open = !open\" class=\"flex items-center gap-4 my-2 border-none w-full\"><br \/>\n<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"h-6 w-6\" fill=\"none\" viewbox=\"0 0 24 24\" stroke=\"currentColor\" stroke-width=\"2\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" d=\"M4 8h16M4 16h16\"\/><\/svg><\/p>\n<p class=\"font-semibold text-slate-800 text-base m-0 js-toc-ignore\">In this article<\/p>\n<p><\/button><\/p>\n<\/section>\n<p><span data-preserver-spaces=\"true\">When my husband and I got married, we bought our first place\u2014a brand-new, 1.5-bedroom condo\u2014in Bedford\u2013Stuyvesant, Brooklyn. At the time, the Bed\u2013Stuy neighborhood was rough\u2014for example, a biker gang that loved to throw huge all-night parties was headquartered at the end of our block, and there were abandoned buildings every few feet, often rustling with the sound of homeless inhabitants. Back in the early aughts, this ZIP code was not for the faint of heart.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">But at $375,000, a solid C-\/D neighborhood was what we could afford in NYC, and our place was new and huge (for Brooklyn) at 1,200 square feet. Plus, I had a hunch. When we first toured the apartment, I went up on the roof and looked out over the neighborhood. From that vantage point, I could see three luxury buildings going up within a few blocks of us. I knew this neighborhood was about to change.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">We loved our place and lived happily there for many years. Then, two kids, one black Lab, and an inevitable migration to the Jersey \u2018burbs later, our Brooklyn place transitioned into a\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/are-rental-properties-a-good-investment\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">rental unit<\/span><\/a><span data-preserver-spaces=\"true\">. We had good luck as\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-a-landlord\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">landlords<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0and very low vacancy rates, renting to excellent tenants who always seemed to be at the same life stage as we were when we lived there: just married and about to have babies\u2014since the .5 bedroom in our apartment made the sweetest nursery.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Our Brooklyn rental, however, never drove significant\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/rental-property-cash-flow-analysis\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">cash flow<\/span><\/a><span data-preserver-spaces=\"true\">. With sizeable monthly maintenance (typical for apartments in NYC) on top of our (fixed, 30-year)\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-a-mortgage\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">mortgage<\/span><\/a><span data-preserver-spaces=\"true\">, we pretty much broke even every month. But man, did it\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-appreciation-in-real-estate\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">appreciate<\/span><\/a><span data-preserver-spaces=\"true\">.<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Over the last few years, we started to realize that based on this equity growth, we could make much more money with our money. With the 2024 resale value of our condo now hovering around $950,000 and a lot of downward pressure on it going much higher anytime soon (due to a hefty New York millionaire tax that kicks in when the sale price tops $1 million), our $800,000 in\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/what-is-home-equity\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">equity<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0is not working nearly hard enough.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">We realized that, in this case, we were perfect candidates for a 1031 exchange.<\/span><\/p>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What Is a 1031 Exchange?<\/span><\/h2>\n<p><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/1031-exchange\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">A 1031 exchange<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0is a tax-advantaged strategy that allows you to trade like for like and essentially kick the hefty\u00a0<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/capital-gains-tax\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">capital gains tax<\/span><\/a><span data-preserver-spaces=\"true\">\u00a0can down the road. In our situation, this would save us a whopping $80,000-plus.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">The gist of the exchange is that you hire a third party to manage the transaction proceeds (if you touch the money yourself, you instantly forfeit the tax deferral benefit and have to pay capital gains taxes), and you are bound by very strict timelines.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Here are the basic rules:<\/span><\/p>\n<ul>\n<li><span data-preserver-spaces=\"true\">New property needs to be of equal or greater value than what you\u2019re selling.<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Need to identify the new property within 45 days of closing on the old (you can ID up to three properties).<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Need to close on the new property within 180 days of selling the old.<\/span><\/li>\n<\/ul>\n<p><span data-preserver-spaces=\"true\">The timing is tight, and any misstep means you forfeit the tax advantage and are on the hook for capital gains tax.\u00a0<\/span><\/p>\n<p><span data-preserver-spaces=\"true\">Our 1031 timer starts in May\u2014five months from now, when our current tenant\u2019s lease ends. Between now and then, we\u2019ll be learning and networking and putting in place as much as we possibly can, so when it\u2019s crunch time, we\u2019ll be ready to go.<\/span><\/p>\n<div class=\"justify-center \" x-data=\"{ IabAdad_block_: popAd(['r720x90'], '1') }\" :class=\"IabAdad_block_.linkURL ? 'flex pt-8' : 'hidden'\">\n<a x-show=\"https:\/\/www.biggerpockets.com\/blog\/IabAdad_block_.linkURL\" x-on:click=\"adClicked('https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-one', IabAdad_block_.sponsor, IabAdad_block_.title, IabAdad_block_.id, 'blockAdClicked', 'blockAd', 'postContent')\" target=\"_blank\" x-init=\"&#10;      analytics.track('blockAdLoaded', {&#10;        referrer: 'https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-one',&#10;        sponsor: IabAdad_block_.sponsor,&#10;        ad_title: IabAdad_block_.title,&#10;        ad_page_location: 'postContent'&#10;      })&#10;    \" x-intersect:enter.once=\"adViewed('https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-one', IabAdad_block_.sponsor, IabAdad_block_.title, IabAdad_block_.id, 'blockAdViewed', 'blockAd', 'postContent')\" rel=\"noopener\"><\/p>\n<div class=\" hidden sm:block\">\n<img class=\"m-0\" :src=\"https:\/\/www.biggerpockets.com\/blog\/IabAdad_block_.r720x90\" :alt=\"IabAdad_block_.r720x90Alt\"\/>\n<\/div>\n<div class=\"block sm:hidden\">\n<img class=\"m-0\" :src=\"https:\/\/www.biggerpockets.com\/blog\/IabAdad_block_.r320x50\" :alt=\"IabAdad_block_.r320x50Alt\"\/>\n<\/div>\n<p><\/a>\n<\/div>\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Building Out Our \u201cSell\u201d Team<\/span><\/h2>\n<p><span data-preserver-spaces=\"true\">Every month, we\u2019ll give ourselves new tasks and things to research to optimize our position and options. Here\u2019s what\u2019s on tap for January:<\/span><\/p>\n<ul>\n<li><span data-preserver-spaces=\"true\">Interviewing agents to list our Brooklyn property, agreeing on a fee<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Deciding: Do we need to do anything to the condo before we list it?<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Interviewing and finding a lawyer\u00a0<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Interviewing and finding a third party to help us with the eventual money exchange<\/span><\/li>\n<li><span data-preserver-spaces=\"true\">Start thinking about where we might want to buy<\/span><\/li>\n<\/ul>\n<p><span data-preserver-spaces=\"true\">Next month, we\u2019ll share how we\u2019ll pick our location and narrow down cities for potential investment (all out of state), and we\u2019ll start to think about our buy box. Stay tuned!\u00a0<\/span><\/p>\n<p><em><span data-preserver-spaces=\"true\">This 1031 diary will be a monthly series throughout 2024, chronicling our journey to a (hopefully) successful and profitable 1031 exchange, which will kick off in May. We\u2019ll share everything\u2014all the numbers, analysis, the good decisions, what we wish we\u2019d done differently, the big mistakes (hopefully not many), and everything in between.\u00a0<\/span><\/em><\/p>\n<p><em><span data-preserver-spaces=\"true\">Got questions? Got advice? What are we missing? Share in the comments below!<\/span><\/em><\/p>\n<div id=\"hero-block_62ee867235a1c\" class=\"first:mt-0 hero-block py-4    has-background has-slate-300-background-color has-text-color has-slate-800-color\">\n<div class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n<div class=\"relative z-30 lg:w-2\/3 \">\n<main class=\"py-4\"><\/p>\n<p class=\"has-theme-slate-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Dreading tax season?<\/p>\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px\">Not sure how to maximize deductions for your real estate business? In <em>The Book on Tax Strategies for the Savvy Real Estate Investor<\/em>, CPAs Amanda Han and Matthew MacFarland share the practical information you need to not only do your taxes this year\u2014but to also prepare an ongoing strategy that will make your next tax season that much easier.<\/p>\n<p><\/main>\n<\/div>\n<div class=\"lg:w-1\/3 first:mt-0 relative h-full lg:flex lg:items-center\">\n<img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/bpimg.biggerpockets.com\/https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2023\/04\/tax-strategies-books.png\" alt=\"tax strategies books\" title=\"Our Rental Tripled in Value\u2014Here\u2019s How We\u2019re Using a 1031 Exchange To Avoid a Massive Tax Bill 2\"\/>\n<\/div>\n<\/div>\n<\/div>\n<p class=\"italic\"><b>Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n<\/div>\n<p><br \/>\n<br \/><a href=\"https:\/\/www.biggerpockets.com\/blog\/1031-investor-journal-one\">Source link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article When my husband and I got married, we bought our first place\u2014a brand-new, 1.5-bedroom condo\u2014in Bedford\u2013Stuyvesant, Brooklyn. At the time, the Bed\u2013Stuy neighborhood was rough\u2014for example, a biker gang that loved to throw huge all-night parties was headquartered at the end of our block, and there were abandoned buildings every few feet, [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":10532,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"fifu_image_url":"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/1031-part-one-1024x517.jpg","fifu_image_alt":"","footnotes":""},"categories":[9],"tags":[],"class_list":["post-10531","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/10531","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/comments?post=10531"}],"version-history":[{"count":1,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/10531\/revisions"}],"predecessor-version":[{"id":10533,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/posts\/10531\/revisions\/10533"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media\/10532"}],"wp:attachment":[{"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/media?parent=10531"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/categories?post=10531"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/imsfund.com\/index.php\/wp-json\/wp\/v2\/tags?post=10531"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}