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  • Combining a SDIRA with a 1031 Exchange

    Combining a SDIRA with a 1031 Exchange

    In a https://www.accruit.com/blog/self-directed-ira-and-1031-exchanges-power… blog, we compare the use of Self-Directed IRAs (SDIRAs) and 1031 exchanges. In this blog we will take those ideas a step further and discuss additional ways that the investor can use SDIRA funds to invest in real estate. 
    According to the Federal Reserve’s 2022 Survey of Consumer Finances – the most recent year for which data is available – over 54% of US families hold retirement accounts, including 401(k)s and IRAs. The average savings in these accounts for all families is about $334,000, and as one might imagine, the balances get higher with age. The average balance for investors aged 55-64 is $537,560, and for investors aged 65-74 the average balance is $609,230. 
    Recently, several Exchangers have inquired about using their retirement accounts in conjunction with their 1031 exchanges. Here we will discuss those situations and how a real estate investor can utilize both a SDIRA and a 1031 exchange to maximize their investment strategy. 
    SDIRA Investments in Real Estate 
    As referenced in a previous blog, real estate is among the more common investments within SDIRAs. While there is no limit as to asset class or type of real estate that the SDIRA can acquire, there are limits on the use of the property and the funds generated by it. First, the property must truly be an investment property, and the IRA account holder along with disqualified parties, including lineal family members (parents, grandparents, and children) cannot reside in or use the property personally. Further, the accountholder and disqualified parties are not allowed to perform sweat equity tasks on the property, such as maintenance or improvements. Second, all investment income goes back to the SDIRA. If the accountholder wants to use rental/income funds that go back into the self-directed IRA account, they will need to take a distribution out of the retirement account. There are other significant restrictions on how the real estate can be used, and investors are encouraged to speak with their tax and legal advisors when considering using SDIRA money to invest in real estate. 
    Combining SDIRA with 1031 Exchange 
    As stated, typically SDIRAs and 1031 exchanges do not intersect, because alone each achieves tax deferral for the real estate investor. An investor using a 1031 exchange on a real estate transaction already achieves tax deferral through the 1031 exchange. An investor who uses funds from an SDIRA account to purchase real estate also achieves tax deferral or tax-free benefits on the transaction. There are times, however, when an Exchanger can combine a direct purchase with a purchase by their SDIRA. 
    A typical scenario would entail an Exchanger in need of additional funds to combine with their Exchange Funds in order to purchase their desired Replacement Property(ies).  
    If the Exchanger has an existing retirement account such as a 401k or IRA, they have the opportunity to open a SDIRA account and fund it from their existing retirement account. This would need to take place prior to the closing of the Replacement Property(ies) and could take anywhere from a few days to a couple of weeks for the transfer to be complete. In addition, there is a 7 day right of recission period. This means that once the SDIRA account is opened, the IRA accountholder cannot make any purchases during this recission period. Therefore, it is recommended that the investor allot at minimum 3-4 weeks to get their SDIRA setup prior to the close of the investment Property. 
    Once the SDIRA is opened and funded, the Exchanger can utilize the SDIRA to fund a portion of the Replacement Property purchase that exceeds the amount of Exchange Funds.  
    Considerations for Using an SDIRA in Replacement Property Purchase 
    As with all investment strategies and tools, the utilization of a SDIRA to purchase Replacement Property in a 1031 exchange has some restrictions and regulations. Below are some of the main considerations an Exchanger should know prior to executing this strategy. 

    The portion of the Replacement Property purchased with SDIRA funds would be purchased as Tenants-In-Common between the Exchanger and the SDIRA. 

    All income associated with the property and expenses will be allocated pro-rata between the SDIRA and titleholders based on the percentage each purchased.

    If the RP purchase price is $1,000,000 and $750,000 was purchased with Exchange Funds, while the remaining $250,000 was purchased with SDIRA funds. The Exchanger would be associated with 75% of the income and expenses while the SDIRA would be associated with the other 25%.

    The Exchanger will need to ensure the SDIRA is funded to cover its percentage of expenses and be aware of the annual limits on contributing to the SDIRA. For 2024, the contribution limit for both a Traditional IRA and a Roth IRA 2024 is $7000. For individuals who are over the age of 50, the contribution limit for a Traditional IRA and a Roth IRA is $8000   

    SDIRA rules supersede the 1031 exchange personal use rules for the property. SDIRA rules do not allow any personal use. Therefore, a property purchased with SDIRA funds, and a 1031 exchange is not eligible for any personal use. 

    Example of Using a SDIRA in a 1031 Exchange 
    Let’s look at a real-life example of how an Exchanger might combine the use of SDIRA funds and a 1031 Exchange.  
    Jason is selling an investment property as part of a properly structured 1031 exchange. Jason enlists the aid of his local real estate professional to sell the property and engages Accruit to serve as the Qualified Intermediary (QI). The property sells, and Jason nets $500,000 after closing costs and commissions, all of which goes directly to Accruit, as the QI. Jason promptly starts his quest to identify qualifying Replacement Property and ultimately finds one that satisfies his investment criteria. The purchase price of the Replacement Property will be $750,000. 
    Jason is considering financing the $250,000 difference through a traditional lender. In conversation with his tax and legal advisors, he is reminded that he could use his retirement account (previous employer 401k or IRA) for part of the purchase if he set-up a SDIRA. Jason transfers his traditional IRA to a company like Quest, a Inspira Financial Solution, where he opens a SDIRA account. For purposes of this discussion, we will assume that Jason is an “average American family” and his new SDIRA is funded with $250,000 from his prior traditional IRA.  
    Jason’s tax and legal advisors remind him that there are restrictions on the use of SDIRA funds and advise him to structure the purchase of his 1031 exchange Replacement Property as a tenants-in-common purchase alongside his SDIRA. Thus, Jason will identify and acquire an undivided 2/3 interest with his 1031 exchange funds, and his SDIRA will acquire the remaining 1/3 of the property. Tenant-in-common rules and SDIRA rules both require that 1/3 of the monthly profits go directly back into the SDIRA account. Coordinating his purchase with Accruit for the 1031, and Quest for the SDIRA, Jason acquires his $750,000 Replacement Property within 180 days of the sale of his Relinquished Property. If Jason sells the property in the future, 1/3 of the sale proceeds will go back to his SDIRA, and he can perform another 1031 Exchange on the remaining 2/3 of the proceeds.  
    Using A 1031 Exchange for Property Held Inside a SDIRA 
    We have discussed the use of a SDIRA within a 1031 exchange, but would someone with property held inside a SDIRA ever need a 1031 Exchange?  
    Generally, the answer is no. Properties owned in a SDIRA do not need a 1031 exchange because investors purchased the property using retirement cash only and already achieve tax deferral.  
    It would only make sense if the sale of the property owned within the SDIRA is subject to UDFI (Unrelated Debt Financed Income). UDFI can be as high as 37% of the sale price. This occurs when the investment property is financed with debt. When an SDIRA requires financing in a real estate transaction, they will need to obtain a non-recourse loan.  
    As always, consult with your tax advisor or CPA for any real estate transaction on property held within a SDIRA that has non-recourse debt and therefore might be a good fit for a 1031 exchange.  
    Consult with a Professional 
    Each of the strategies here has their own risks and benefits, and each of these strategies could be part of a larger overall real estate investment strategy. No one strategy is right for everyone. This article is not intended to be an exhaustive guide on the use of SDIRAs in real estate investing. Rather, it is intended to be a resource for the investor, and to encourage the investor to discuss their individual situations with their financial planner, attorney, and accountant, as well as with a 1031 exchange representative at Accruit, and a SDIRA representative at Quest, a Inspira Financial Solution.  
     
    This piece was co-authored by David Gorenberg, JD, CES®. Visit https://www.accruit.com/about/meet-team/david-gorenberg”>this link for more of David’s educational articles. 
     
    The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.
     

  • UPDATE: IRS Announces Tax Relief for Taxpayers Impacted by Hurricane Debby

    Due to Hurricane Debby, the IRS has issued Tax Relief for counties within Georgia, Florida, North Carolina, South Carolina, Vermont, and Pennsylvania.  
    Affected Taxpayers have until February 3, 2025, to make tax payments and file for various individual and business tax returns.  
    Currently, all individuals and households that reside in or have a business within South Carolina, Vermont, 61 named counties in Florida, 55 counties in Georgia, 66 counties in North Carolina, and 4 counties in Pennsylvania qualify for tax relief. Any area added to the disaster area at a later time will also qualify for tax relief.

  • UPDATE: IRS Announces Tax Relief for Taxpayers Impacted by Hurricane Debby

    Due to Hurricane Debby, the IRS has issued Tax Relief for counties within Georgia, Florida, North Carolina, South Carolina, Vermont, and Pennsylvania.  
    Affected Taxpayers have until February 3, 2025, to make tax payments and file for various individual and business tax returns.  
    Currently, all individuals and households that reside in or have a business within South Carolina, Vermont, 61 named counties in Florida, 55 counties in Georgia, 66 counties in North Carolina, and 4 counties in Pennsylvania qualify for tax relief. Any area added to the disaster area at a later time will also qualify for tax relief.

  • UPDATE: IRS Announces Tax Relief for Taxpayers Impacted by Hurricane Debby

    Due to Hurricane Debby, the IRS has issued Tax Relief for counties within Georgia, Florida, North Carolina, South Carolina, Vermont, and Pennsylvania.  
    Affected Taxpayers have until February 3, 2025, to make tax payments and file for various individual and business tax returns.  
    Currently, all individuals and households that reside in or have a business within South Carolina, Vermont, 61 named counties in Florida, 55 counties in Georgia, 66 counties in North Carolina, and 4 counties in Pennsylvania qualify for tax relief. Any area added to the disaster area at a later time will also qualify for tax relief.

  • IRS Announces Tax Relief for Louisiana Taxpayers Impacted by Hurricane Francine

    IRS Announces Tax Relief for Louisiana Taxpayers Impacted by Hurricane Francine

    Due to Hurricane Francine, the IRS has issued Tax Relief for the entire state of Louisiana. 
    Affected Taxpayers have until February 3, 2025, to make tax payments and file for various individual and business tax returns.  
    Currently, all individuals and households that reside in or have a business within the entire state of Louisiana qualify for tax relief. Any area added to the disaster area at a later time will also qualify for tax relief. 
    An “Affected Taxpayer” includes individuals who live, and businesses whose principal place of business is in the Covered Disaster Area. Affected Taxpayers are entitled to relief regardless of where the relinquished property or replacement property is located. Affected Taxpayers may choose either the General Postponement relief under Section 6 OR the Alternative relief under Section 17 of Rev. Proc. 2018-58. Taxpayers who do not meet the definition of Affected Taxpayers do not qualify for Section 6 General Postponement relief. 
    Option One: General Postponement under Section 6 of Rev. Proc. 2018-58nt under Section 6 of Rev. Proc. 2018-58 (Affected Taxpayers only). Any 45-day deadline or 180-day deadline (for either a forward or reverse exchange) that falls on or after the Disaster Date above is postponed to the General Postponement Date. The General Postponement applies regardless of the date the Relinquished Property was transferred (or the parked property acquired by the EAT) and is available to Affected Taxpayers regardless of whether their exchange began before or after the Disaster Date. 
    Option Two: Section 17 Alternative (Available to (1) Affected Taxpayers and (2) other Taxpayers who have difficulty meeting the exchange deadlines because of the disaster. See Rev. Proc. 2018-58, Section 17 for conditions constituting “difficulty”). Option Two is only available if the relinquished property was transferred (or the parked property was acquired by the EAT) on or before the Disaster Date. Any 45-day or 180-day deadline that falls on or after the Disaster Date is extended to THE LONGER OF: (1) 120 days from such deadline; OR (2) the General Postponement Date. Note the date may not be extended beyond one year or the due date (including extensions) of the tax return for the year of the disposition of the Relinquished Property (typically, if an extension was filed, 9/15 for corporations and partnerships and 10/15 for other Taxpayers).  
    https://www.irs.gov/newsroom/irs-provides-relief-to-francine-victims-in… style=”font-size:12.0pt;mso-bidi-font-family:Calibri;mso-bidi-theme-font:
    minor-latin;font-weight:normal”>https://www.irs.gov/newsroom/irs-provides-relief-to-francine-victims-in… for full details on the tax relief for Hurricane Francine. 
     
    The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice. 

  • IRS Announces Tax Relief for Louisiana Taxpayers Impacted by Hurricane Francine

    IRS Announces Tax Relief for Louisiana Taxpayers Impacted by Hurricane Francine

    Due to Hurricane Francine, the IRS has issued Tax Relief for the entire state of Louisiana. 
    Affected Taxpayers have until February 3, 2025, to make tax payments and file for various individual and business tax returns.  
    Currently, all individuals and households that reside in or have a business within the entire state of Louisiana qualify for tax relief. Any area added to the disaster area at a later time will also qualify for tax relief. 
    An “Affected Taxpayer” includes individuals who live, and businesses whose principal place of business is in the Covered Disaster Area. Affected Taxpayers are entitled to relief regardless of where the relinquished property or replacement property is located. Affected Taxpayers may choose either the General Postponement relief under Section 6 OR the Alternative relief under Section 17 of Rev. Proc. 2018-58. Taxpayers who do not meet the definition of Affected Taxpayers do not qualify for Section 6 General Postponement relief. 
    Option One: General Postponement under Section 6 of Rev. Proc. 2018-58nt under Section 6 of Rev. Proc. 2018-58 (Affected Taxpayers only). Any 45-day deadline or 180-day deadline (for either a forward or reverse exchange) that falls on or after the Disaster Date above is postponed to the General Postponement Date. The General Postponement applies regardless of the date the Relinquished Property was transferred (or the parked property acquired by the EAT) and is available to Affected Taxpayers regardless of whether their exchange began before or after the Disaster Date. 
    Option Two: Section 17 Alternative (Available to (1) Affected Taxpayers and (2) other Taxpayers who have difficulty meeting the exchange deadlines because of the disaster. See Rev. Proc. 2018-58, Section 17 for conditions constituting “difficulty”). Option Two is only available if the relinquished property was transferred (or the parked property was acquired by the EAT) on or before the Disaster Date. Any 45-day or 180-day deadline that falls on or after the Disaster Date is extended to THE LONGER OF: (1) 120 days from such deadline; OR (2) the General Postponement Date. Note the date may not be extended beyond one year or the due date (including extensions) of the tax return for the year of the disposition of the Relinquished Property (typically, if an extension was filed, 9/15 for corporations and partnerships and 10/15 for other Taxpayers).  
    https://www.irs.gov/newsroom/irs-provides-relief-to-francine-victims-in… style=”font-size:12.0pt;mso-bidi-font-family:Calibri;mso-bidi-theme-font:
    minor-latin;font-weight:normal”>https://www.irs.gov/newsroom/irs-provides-relief-to-francine-victims-in… for full details on the tax relief for Hurricane Francine. 
     
    The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice. 

  • IRS Announces Tax Relief for Louisiana Taxpayers Impacted by Hurricane Francine

    IRS Announces Tax Relief for Louisiana Taxpayers Impacted by Hurricane Francine

    Due to Hurricane Francine, the IRS has issued Tax Relief for the entire state of Louisiana. 
    Affected Taxpayers have until February 3, 2025, to make tax payments and file for various individual and business tax returns.  
    Currently, all individuals and households that reside in or have a business within the entire state of Louisiana qualify for tax relief. Any area added to the disaster area at a later time will also qualify for tax relief. 
    An “Affected Taxpayer” includes individuals who live, and businesses whose principal place of business is in the Covered Disaster Area. Affected Taxpayers are entitled to relief regardless of where the relinquished property or replacement property is located. Affected Taxpayers may choose either the General Postponement relief under Section 6 OR the Alternative relief under Section 17 of Rev. Proc. 2018-58. Taxpayers who do not meet the definition of Affected Taxpayers do not qualify for Section 6 General Postponement relief. 
    Option One: General Postponement under Section 6 of Rev. Proc. 2018-58nt under Section 6 of Rev. Proc. 2018-58 (Affected Taxpayers only). Any 45-day deadline or 180-day deadline (for either a forward or reverse exchange) that falls on or after the Disaster Date above is postponed to the General Postponement Date. The General Postponement applies regardless of the date the Relinquished Property was transferred (or the parked property acquired by the EAT) and is available to Affected Taxpayers regardless of whether their exchange began before or after the Disaster Date. 
    Option Two: Section 17 Alternative (Available to (1) Affected Taxpayers and (2) other Taxpayers who have difficulty meeting the exchange deadlines because of the disaster. See Rev. Proc. 2018-58, Section 17 for conditions constituting “difficulty”). Option Two is only available if the relinquished property was transferred (or the parked property was acquired by the EAT) on or before the Disaster Date. Any 45-day or 180-day deadline that falls on or after the Disaster Date is extended to THE LONGER OF: (1) 120 days from such deadline; OR (2) the General Postponement Date. Note the date may not be extended beyond one year or the due date (including extensions) of the tax return for the year of the disposition of the Relinquished Property (typically, if an extension was filed, 9/15 for corporations and partnerships and 10/15 for other Taxpayers).  
    https://www.irs.gov/newsroom/irs-provides-relief-to-francine-victims-in… style=”font-size:12.0pt;mso-bidi-font-family:Calibri;mso-bidi-theme-font:
    minor-latin;font-weight:normal”>https://www.irs.gov/newsroom/irs-provides-relief-to-francine-victims-in… for full details on the tax relief for Hurricane Francine. 
     
    The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice. 

  • Accruit Launches Private Client Group

    Accruit Launches Private Client Group

    Accruit, a leading national 1031 exchange Qualified Intermediary, is proud to announce the launch of Private Client Group, a boutique 1031 exchange offering within Accruit. Private Client Group is composed of experts in the field focused on providing tailored 1031 Qualified Intermediary solutions that align with the client’s goals and objectives.
    Private Client Group focuses on providing high-touch service and strategic planning to clients and their advisory teams. By providing comprehensive analysis and proactive solutions to complex issues, the group fills a void within the Qualified Intermediary industry. As such, Private Client Group delivers unrivaled service for high-net worth individuals, family offices, specialized law practices, wealth managers, and institutional investors. With highly knowledgeable attorneys engaged in each transaction, the group delivers tailored solutions that meet the unique needs and goals of each client.
    “We are thrilled to introduce the Private Client Group to our clients,” said Steve Holtkamp, Senior Managing Director, and Chief Revenue Officer at Accruit. “Our goal is to offer a more proactive and personalized approach to 1031 exchange tax deferrals, ensuring that our clients receive the highest level of service and expertise.”
    According to Accruit Senior Director Jonathan Barge, “the Private Client Group was developed in response to the demand from high-net-worth clients for a 1031 service that wasn’t ‘off the shelf.’ Trust and strong relationships are cornerstones for the group’s delivery of expert solutions, ethical practices, and utmost discretion required by these clients.”
    The launch of the Private Client Group is part of Accruit’s ongoing commitment to revolutionizing the 1031 exchange industry by providing innovative solutions to its clients.

  • Accruit Launches Private Client Group

    Accruit Launches Private Client Group

    Accruit, a leading national 1031 exchange Qualified Intermediary, is proud to announce the launch of Private Client Group, a boutique 1031 exchange offering within Accruit. Private Client Group is composed of experts in the field focused on providing tailored 1031 Qualified Intermediary solutions that align with the client’s goals and objectives.
    Private Client Group focuses on providing high-touch service and strategic planning to clients and their advisory teams. By providing comprehensive analysis and proactive solutions to complex issues, the group fills a void within the Qualified Intermediary industry. As such, Private Client Group delivers unrivaled service for high-net worth individuals, family offices, specialized law practices, wealth managers, and institutional investors. With highly knowledgeable attorneys engaged in each transaction, the group delivers tailored solutions that meet the unique needs and goals of each client.
    “We are thrilled to introduce the Private Client Group to our clients,” said Steve Holtkamp, Senior Managing Director, and Chief Revenue Officer at Accruit. “Our goal is to offer a more proactive and personalized approach to 1031 exchange tax deferrals, ensuring that our clients receive the highest level of service and expertise.”
    According to Accruit Senior Director Jonathan Barge, “the Private Client Group was developed in response to the demand from high-net-worth clients for a 1031 service that wasn’t ‘off the shelf.’ Trust and strong relationships are cornerstones for the group’s delivery of expert solutions, ethical practices, and utmost discretion required by these clients.”
    The launch of the Private Client Group is part of Accruit’s ongoing commitment to revolutionizing the 1031 exchange industry by providing innovative solutions to its clients.

  • Accruit Launches Private Client Group

    Accruit Launches Private Client Group

    Accruit, a leading national 1031 exchange Qualified Intermediary, is proud to announce the launch of Private Client Group, a boutique 1031 exchange offering within Accruit. Private Client Group is composed of experts in the field focused on providing tailored 1031 Qualified Intermediary solutions that align with the client’s goals and objectives.
    Private Client Group focuses on providing high-touch service and strategic planning to clients and their advisory teams. By providing comprehensive analysis and proactive solutions to complex issues, the group fills a void within the Qualified Intermediary industry. As such, Private Client Group delivers unrivaled service for high-net worth individuals, family offices, specialized law practices, wealth managers, and institutional investors. With highly knowledgeable attorneys engaged in each transaction, the group delivers tailored solutions that meet the unique needs and goals of each client.
    “We are thrilled to introduce the Private Client Group to our clients,” said Steve Holtkamp, Senior Managing Director, and Chief Revenue Officer at Accruit. “Our goal is to offer a more proactive and personalized approach to 1031 exchange tax deferrals, ensuring that our clients receive the highest level of service and expertise.”
    According to Accruit Senior Director Jonathan Barge, “the Private Client Group was developed in response to the demand from high-net-worth clients for a 1031 service that wasn’t ‘off the shelf.’ Trust and strong relationships are cornerstones for the group’s delivery of expert solutions, ethical practices, and utmost discretion required by these clients.”
    The launch of the Private Client Group is part of Accruit’s ongoing commitment to revolutionizing the 1031 exchange industry by providing innovative solutions to its clients.