1031 Exchanges & International Real Estate {WEBINAR}

This article was published in the Escape Artist Weekly Newsletter on January 09, 2018. If you would like to subscribe to the newsletter, please click here.

CoC.  TLC.  Cap rate.  TMV.  LTV.  Depreciation.  CFBT.  IRR. 1031.  What do these seemingly random acronyms and words have in common?

For all of the American real estate investors out there, you may be nodding your head at exactly what each term means.

For the non-real estate investors, these terms specifically relate to the world of real estate investing – from loan terms to rates of return to cash flow formulas.

First, we’ll take a step back to the basics. And then we’ll add the international twist… a handy component that anyone thinking about owning property overseas will want to know.

When I first entered the international real estate industry, I was familiar with the meaning of and math behind “ROI,” but only knew “TLC” as “The Learning Channel.” There was quite a learning curve to undergo, and each day consisted of Googling questions, reading articles, and pestering Mike Cobb.

One topic that caught my attention fairly early on was 1031 exchanges. A few days in, a fellow inquired about exchanging his Boquete, Panama, property for a San Pedro, Belize, gardens condo. “Great, let’s do it,” his international accountant said, “But first we need to find someone who can make it happen.”

1031 Exchanges & International Real Estate {WEBINAR}

But when it came down to facilitating and finalizing the transaction, many 1031 companies stumbled as they haphazardly attempted to move forward. They were unsure of the next step and, as a result, his 60-day timeframe expired. Ultimately he lost the opportunity to complete the transfer and ended up paying a tremendous amount of capital gains on his Panama property.

Let’s take a quick step back. What exactly is a 1031 exchange?

{REGISTER FOR A LIVE 1031 EXCHANGE WEBINAR}

In layman’s terms, when you sell an investment property, you are able to defer capital gains tax on that property by reinvesting the funds in an investment property of like-kind.

As defined by the IRS:

“Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.”

{Full IRS post here}

As defined in the IRC 1031 (a)(1):

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”

This application has been an extremely lucrative advantage to real estate investors. The top 3 reasons why savvy investors decide to take advantage of this 1031 exchange option include:

  1. Deferred capital gains tax.
  2. Unlimited number of times you can roll the profit into another investment property –  you’re able to continue growing your nest egg.
  3. Maintaining an investment in hard assets.

1031 Exchanges & International Real Estate {WEBINAR}

There are a few important stipulations to note when considering a 1031 exchange. For example, there is a very specific timeline. A new property must be identified within 45 days, and the replacement property must be in receivership in 180 days. The replacement property must be “of like-kind” which is determined by a facilitator, and no, that facilitator cannot be you, your real estate agent, or your attorney. And of course, there are certain IRS forms and paperwork to complete.

Now, let’s focus on what this means for international real estate investors. As we saw in the IRS definition, you are able to do a 1031 exchange for properties of “like-kind.” What exactly is defined as “like-kind?” A ranch in Oklahoma to a ranch in Costa Rica? Not exactly.

{REGISTER FOR A LIVE 1031 EXCHANGE WEBINAR}

As defined by the IRS,

“Like-kind property is property of the same nature, character, or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate. For example, real property that is improved with a residential rental house is like-kind to vacant land. One exception for real estate is that property within the United States is not like-kind to property outside of the United States. Also, improvements that are conveyed without land are not of like-kind to land.”

{Full IRS post here}

For an international 1031 exchange to occur, you are required to exchange

international-to-international property. What that fellow above was planning to do, exchanging his condo in Boquete to a condo in San Pedro was a great example. However, at that time, no agency could get it together to successfully facilitate this transaction.

There are many more important intricacies to understand if you’re considering a 1031, and I’d recommend joining one of the most experienced agencies for a live webinar on Wednesday, January 24th at 7:00 pm EST/4:00 pm PST. This group truly is top-notch in terms of performance, customer service, and competency.

1031 Exchanges & International Real Estate {WEBINAR}

Specifically for the Escape Artist and ECI readership, they have agreed to host a special,

complimentary webinar covering the nuts and bolts of 1031 exchanges, generally, and then digging into the international Consumer Resource Guidecomponent.

You must be registered to attend this live e-session on Wednesday, January 24th at 7:00 pm EST/ 4:00 pm PST, so I recommend spending 30 seconds to register right now.

If you’re not able to attend the live session and are interested in learning more about this topic, please register and a recording will be emailed to you.

This article was published in the Escape Artist Weekly Newsletter on January 09, 2018. If you would like to subscribe to the newsletter, please click here.