San Diego Investment Property
Investors have enjoyed big returns with San Diego real estate over the years. Tax-free 1031 exchanges provide a vehicle for trading between houses, condos, apartments, land, and commercial properties. The residential market of San Diego homes often shifts between buyer and seller’s market. The market shifts at different times for residential and commercial real estate, so knowing when to buy and when to sell is important. When markets are down, investing in foreclosures is very popular, but there are always opportunities to make money in San Diego real estate. It helps a lot to have qualified San Diego Realtors on your team.
San Diego 1031 Exchanges
In a nutshell, the 1031 Exchange allows a San Diego property investor to sell one or more properties without paying capital gains tax. San Diego 1031 exchanges are part of every real estate investor’s strategy. To complete a 1031 Exchange in San Diego, the proceeds of the first sale are used to buy a replacement property. The profits from the first sale are thereby exempt from capital gains tax. So the investor who purchased a San Diego beachfront condominium for $500,000 can now sell it for $900,000 without paying capital gains tax on the $400,000 gain. Instead the entire $400,000 is used as a downpayment on a new home that is valued at more than $900,000. The mechanism is a great way to switch between property types – i.e. condominium to single family home, or single family home to apartment building.
The timing of the San Diego 1031 Exchange is simple. When a San Diego investment property is sold (close of escrow), the proceeds from the sale of the property are held to purchase a replacement property. The replacement property must be identified within 45 days after the sale. The purchase of the replacement property must be formally completed within 180 days after the original property was sold.
Some San Diego real estate investors prefer to find a replacement property before selling their current holding(s). The Reverse 1031 Exchange allows the investor to purchase the replacement property first, then sell. For example, the person who purchased Del Mar home for $750,000 thinks the house is now worth $1,750,000. An oceanfront duplex becomes available for $2,500,000. The investor may buy the oceanfront duplex. Within 45 days after the new purchase, the investor must put the Del Mar home up for sale. The house must be formally sold within 180 days after the oceanfront duplex was purchased.
The 1031 Exchange rules are very strict with timing. This is an introductory guide. We recommend that you consult a tax professional to determine how the tax laws will apply to your precise situation. There are restrictions involving sale of property to related entities, family members, and partnerships. Some types of sales may be disqualified. And these rules don’t apply to the sale of a home or personal residence. Your San Diego real estate professionals will answer questions and provide references to service providers who will be critical to completing the 1031 Exchange in San Diego County.
We will guide you through the home selling process to make sure that you maximize your investment!
Other resources are available at:
- National Association of Realtors Field Guide To 1031 Exchanges