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1031 Exchange Opportunities - What Are You Selling & What Do You WANT It to Be? 121 vs. 1031 - YouTube
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hello david moore with equity advantage and we're聽
going to talk about what you're selling today so聽聽
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i'm going to put it out to you you know what do聽
you think it is and what do you really want it聽聽
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to be and and the reason i throw that question聽
out there is we we're in a sort of a strange聽聽
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world right now uh just with inflation everything聽
else that's going on we yes once again it's it's聽聽
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uh you know may of 2022 and yet again here we聽
are fighting for 1031 survival although nobody聽聽
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in our industry is really taking that threat聽
seriously but what their what once again the聽聽
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biden administration has proposed is a cap on an聽
individual's ability to defer gains at a half a聽聽
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million dollars uh per person per year i think聽
that half million really sort of floats back to聽聽
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1997 with sections 121 the 250 or 500 exclusion聽
and otherwise i don't know how the half million聽聽
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gets to be but the reason i bring up section 121聽
not not only just because i think it's part of聽聽
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that conversation is that if you look at the 250聽
or 500 that was put in place in 1997 and compare聽聽
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that to property values today 2022 it's a totally聽
different world and i i really firmly believe the聽聽
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250 or 500 probably ought to be million million聽
five or even greater today to offer the same聽聽
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protection the exclusion offered when it came into聽
place replacing section 1034 in in 1997. so if聽聽
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we're looking at what you're selling uh you know聽
once again i'm going to ask you what do you think聽聽
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it is and what do you really want it to be i mean聽
there's many situations through the years where聽聽
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we've taken a property that maybe was a a primary聽
residence and it was converted into an investment聽聽
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at some point in time did you know that as long as聽
if you meet the two out of five that section 121聽聽
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covers that that you could be living in a home聽
you can move out of that home as long as you sold聽聽
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it within three years of moving out you're still聽
entitled to section 121 the 250 or 500 exclusion聽聽
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so once again 121 is not what something is at聽
time of sale it's whether it fits a two out of聽聽
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five requirement and and that's something聽
we've done many times through the years聽聽
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section 121 also says you can apply it once聽
every two years that's not an absolute you could聽聽
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have multiple sales as part of one transaction聽
let's say you had a house with the adjacent lot聽聽
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and that lot was your backyard forever well in聽
today's world you're probably going to break it聽聽
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off and do a 1031 on that piece just because your聽
gains are probably well in excess of 250 or 500聽聽
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on the sale of your home which leads me to this聽
so we can convert a residence and do investment聽聽
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we can go investment to residents one of the big聽
reasons we're going to look at actually converting聽聽
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a property from a primary residence into聽
investment is to protect you to keep your聽聽
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money yours we like to say you've worked hard聽
for your money we work hard to keep it yours聽聽
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now imagine you've got a a home that's got a聽
basis of a half million dollars and now you're聽聽
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selling the property and it's a million five or聽
two million uh you're not going to get very far聽聽
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that exclusion is going to leave you hanging out聽
there to the tune of a million million five you're聽聽
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going to lose you know at least a third of that聽
to tax so you probably don't want to have that聽聽
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happen so what are your choices well just move out聽
of the house treat it as an investment property聽聽
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for a period of time that period of time is not聽
spelled out in the code you need to talk to your聽聽
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tax people about this but you're just going to聽
move out of that home after you've seasoned it聽聽
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as an investment property for what you and your聽
tax people feels a reasonable period of time聽聽
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you can then sell it you're still entitled to聽
the exclusion you're going to 1031 the overage聽聽
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now you know a lot of times you might say聽
well gee i don't want to income property i聽聽
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want to deal with the terrible tees toilets trash聽
tenants turnover what do i do well maybe you just聽聽
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do that 1031 overage and do something called the聽
delaware statutory trust so there's other things聽聽
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out there that can take care of it but like i聽
said you're in a situation you've got a home聽聽
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with gains well in excess of the 250 or 500 you聽
don't want to pay the tax on that transaction聽聽
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move out of it convert it to an investment as聽
long as you sell it within three out three years聽聽
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of moving out of it you're still entitled to聽
exclusion you're going to 1031 the overage so聽聽
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that's an example of taking a primary residence聽
going investment now let's go the other way聽聽
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where's the situation where you might take and聽
convert an investment to your residence well聽聽
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lots of times people want to go out and buy聽
something at the beach they buy that property聽聽
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at the beach they say boy that beach property is聽
really nice they ultimately want to move into it聽聽
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so we can acquire something via 1031聽
and after a reasonable period of time聽聽
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convert it from an investment to residents聽
there's no tax on the conversion the tax聽聽
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consequence is going to happen upon a future聽
disposition which leads me to this if you聽聽
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acquire a property via 1031 convert it into a聽
primary residence do not sell it within five聽聽
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years of acquisition if you sell it within five聽
years of acquisition it's a fully taxable sale聽聽
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so number one don't do that uh number two even聽
if you've held it for more than five years聽聽
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you're going to be subject to something called the聽
housing assistance tax act of 2008 and it's pretty聽聽
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ugly all right and what basically it says is that聽
you're only going to be allowed the 250 or 500聽聽
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exclusion on a on a qualified use period so what聽
happens is from 2009 of the data conversion that's聽聽
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gain attributable non-qualified use the qualified聽
use is the time you live in it and you're going聽聽
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to be allowed that proration based upon the ratio聽
between qualified versus non-qualified use periods聽聽
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it's convoluted talk to your tax people about it聽
make sure they know about it but that that rule聽聽
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exists it's been here since 2008 now and we have聽
lots of people that work with that all the time聽聽
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bottom line long story short look at that聽
transaction look at the acquisition conversion聽聽
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of investment to residents as an endgame a place聽
to go you're going to be there for the foreseeable聽聽
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future don't look at it as hey i'm going to聽
do this transaction i got this great idea i'm聽聽
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going to buy the property hold it a year live聽
in it for two take the exclusion have no gain聽聽
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it does not work no longer works hasn't worked聽
for a number of years but it still floats around聽聽
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out there as good ideas for people if you've got聽
further questions on on either conversion from聽聽
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from a residence into investment or investment聽
to residents please don't hesitate to reach out聽聽
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we're happy to talk to you about these topics聽
and we do it all the time and like i said we聽聽
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we try to keep your money yours working for聽
you you've worked hard for it we want it to聽聽
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work hard for you once again david moore equity聽
advantage 1031exchange.com thanks for joining bye
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