I’m going to be selling a commercial property soon and making a big (for me) profit. I understand that if I put the money into another commercial property that I won’t have to pay tax on the capital gains. But I don’t want to be a landlord any more. Can I put the money into something like a REIT and avoid the taxes that way? Or is there something like a REIT that qualifies, maybe buying into a partnership or something?
Also we will be buying a new home to live in soon. It will cost more than our profits. Someone told me I could buy the new home, declare it an investment, then “change my mind” and move in. That sounds very illegal and very dumb, but what do I know?
Any thoughts welcome. Facts, books, web sites, advice on how to find the right advisor.
Both REITs and Partnerships do not qualify for a 1031 exchange (for capital gains deferal). The IRS is fairly specific about what it considers a “like-kind” property. REITs and Partnerships are both considerd personal propery as opposed to real estate.
On the bait & switch, it’s a bad idea. The IRS can deny your exchange if your transaction is fishy-- and they do not recognize an exchange between commercial and primary residental propery. A waiting period is required before transitioning the purpose of a property.
What might be something for you to look into is a Tenancy-In-Common (TIC). It’s actually a securities transaction, and yet a real estate transaction. Buyers are on the title and have fractional ownership with a pool of others and a huge commercial building. The IRS rulled that these do qualify for commercial 1031 exchanges, and they’re popular among retiring landlords in my neck of the woods, where property values have skyrocketed into the stratosphere. There is one catch: These are Regulation D securities, and they require all investors to be accredited, which requires net worth of a million dollars, or a $200,000 a year annual income.
My advice is to talk to a financial advisor, because there may be some other related options if you don’t make the requirements (the industry is evolving rapidly). The best kind will be one like my old boss, who has both a real estate license and a securities license, who can help you explore all your options.
Note that I do not hold a current securities license of any stripe, I just used to work in the industry. Don’t mistake this for financial advice. (The industry is HIGHLY regulated and strict, so 'scuse the disclaimers.) I do, however, have bookmarked websites about TICs to sink a boat, so if you’re interested in more info, email’s in the profile.