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Micky Gramlin
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Micky Gramlin   My Press Releases

Understanding 1031 Exchanges Residual Income Series 5

Published on 7/10/2018
For additional information  Click Here

 

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“Imagination is everything. It is the preview of life’s coming attractions.” – Albert Einstein

 

 

What is the formula for residual income?

"The basic formula for calculating residual income is to multiply operating assets by the cost of capital, and then subtract this value from operating income. By adjusting income by the cost of capital, RI can provide insight into the rate of return on invested assets."

This is just a small overview on 1031 Exchanges and more information will follow. How to set up one. More details on the pros and cons of being a part of a 1031 Exchange and some of the terminology

When properly structured, a 1031 exchange allows an investor to sell property, then reinvest the proceeds in a new property and defer all capital gain taxes.

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

“To understand the powerful protection a 1031 exchange offers, consider the following example:

 

  • Assume an investor has $400,000 in gain and also $400,000 in net proceeds after closing. Assuming an investor with a $400,000 capital gain and incurs a tax liability of approximately $140,000 in combined taxes (depreciation recapture, federal capital gain tax, state capital gain tax, and net investment income tax) when the property is sold.

Only $260,000 in net equity remains to reinvest

in another property.

 

  • Assuming a 25% down payment and taking on new financing for the purchase with a 75% loan-to-value ratio, the investor would only be able to purchase a $1,040,000 replacement property.

 

  • If the same investor chose to exchange, however, he or she would be able to reinvest the entire gross equity of $400,000 in the purchase of $1,600,000 replacement property, assuming the same down payment and loan-to-value ratios.”

 

 

Tax-deferred exchanges allow investors to defer capital gain taxes, as well as recognize a significant growth in their portfolio due to a increased return on their investment.

The Benefits

> The most important benefit of a 1031 exchange is that when requirements are met, capital gain can be deferred until the taxpayer chooses to recognize it. (Federal and state). What this really boils down too is that it is a long term, interest free loan from the IRS

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> If you expect to replace what you are selling with property, then               consider an exchange. The consequence of not doing an exchange             means the payment of a Capital Gains Tax, which means reduced           buying power.

Leverage at 100% instead of 70% to 80%. A very big difference

> Preservation of your equity = more buying power

> Maximize Return On Investment (ROI)

> Increased cash flow from larger properties

 

More  to follow!

Thank you for stopping by!

Micky Gramlin

Sources

1031crowdfunding

apiexchange

realized1031

RELATED POSTS

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Residual Income Ideas 1

Residual Income Ideas 2

Residual Income Ideas 3

THE MARCH OF THE ROBO-ADVISORS: The Residual Income Series 4

Risks To Consider With A 1031 Exchange Residual Income Series 6

Residual Income And MLM’s Series 7

Residual Income, A Look At Annuities: Series 8

 

 

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