Taking Title -- 1031 (Tax-Deferred) Exchange
What is a 1031 Exchange?
Using a 1031 exchange an investor can sell real estate, buy more real estate of equal or greater value, and defer the tax on the capital gains from the sale of the first property. The investor may not take receipt of the proceeds of the sale of the first property, so a "qualified intermediary" (QI) is required. Also the exchange must occur within 180 days. IRS rules regarding 1031 exchanges are very specific, so consult the IRS regulations and guidelines from professional qualified intermediaries as you consider using a 1031 exchange to defer capital gains.
RBS Helps Meet the 1031 Requirements
A successful 1031 exchange will produce considerable cash savings for the investor. An experienced, professional partner like RBS will assure that the exchange goes smoothly. RBS has many resources to aid the investor in setting up and executing the exchange:
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Exchange Requirement |
Potential Problems |
Solution with RBS |
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Time Limits |
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45 days to Identify potential replacmenet properties, |
Failure to identify potential properties within 45 days may disqualify the exchange, thus losing any deferral of capital gains taxes. |
RBS produces residential investment properties with high consistency, reliable cash flow, and ready availability. We have a large inventory of properties, so the investor can quickly identify potential properties for the exchange. |
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180 day time limit to complete the exchange. . |
Failure to complete the exchange within 180 days will disqualify the exchange, thus losing any deferral of capital gains taxes. |
Since RBS already has the properties in its inventory, the investor can count on RBS to deliver properties quickly, with no surprises at the closing. Dealing with a single seller on the exchange can simplify the closing. |
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Requirements for Full Deferral of all Capital Gains Summarizing the IRS regulations; the value, equity, and debt in the replacement property must equal or exceed the corresponding amount in the relinquished property in order to defer all capital gains. |
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Value – greater or equal |
Tax may be due on capital gains attributable to the difference. |
Because RBS properties are typically priced between $100,000 and $150,000, the investor can purchase several properties, acquiring just enough asset value to defer all capital gains, |
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Equity – greater or equal |
Tax may be due on capital gains attributable to the difference. |
RBS properties are detached, single-family homes, which qualify easily for loans up to 75% of the property value. The investor has great flexibility to adjust the loan-to-value ratio as needed. |
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Debt – greater or equal |
Tax may be due on capital gains attributable to the difference. |
Same as above. With RBS homes, the investor has the most flexibility to adjust debt and equity values in each individual property, and in the total package of replacement properties. |
RBS Provides Cash Flow and Flexibility
In any partnership, partners may have different needs and time frames. In a partnership which owns only a single property, the partners are locked together, each with an indivisible interest in that property. By exchanging into a collection of RBS properties, the partners now have the freedom to disentangle their interests, without necessarily triggering any tax consequences.
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Benefits of RBS |
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Issue |
Potential Problem |
Solution with RBS |
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Indivisible Interests |
Each partner has different needs and time frames. |
With RBS, the partnership can exchange a single property for a number of smaller properties from RBS. RBS has a number of single family, detached homes in inventory, ready for immediate purchase. The partnership can distribute individual properties to individual partners. |
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Immediate Cash Flow |
The replacement property may not generate positive cash flow. |
RBS properties generate cash flow of 9-12%+ immediately. No need for cash calls on the partners. |
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Taking Profit s |
Selling a single property creates lumpy cash flow. |
With multiple RBS properties, the investor can sell one property at a time, realizing profits only as needed, and continuing o defer capital gains on other properties. |