Tag Archives: like kind exchange

Self-Directed IRA: The Basics

When you put “real estate” and “IRA” in a single topic, the self-directed IRA usually comes to view. An alternative to the venerable 401(k), a self-directed IRA entitles the holder to any investment tax-free until retirement. Although it’s unclear how many Americans use this special kind of IRA, the Securities and Exchange Commission last year estimated two percent of all IRAs. The fact that companies have reported growth over the years from these IRAs means the number is steadily rising. 

While it may sound like a promising deal, it usually is if you take note of the restrictions behind it. Under the Employee Retirement Income Securities Act of 1974, a self-directed IRA cannot be applicable to certain situations such as paying for a relative’s down payment. More importantly, if you or your family benefits from the real estate you bought with a self-directed IRA financially, there’s a ten-percent tax penalty waiting for you. In addition, any repair job must be funded using the IRA. 

Any deal isn’t without its ups and downs, but many have benefited from self-directed IRAs. Some who moved from other types of IRAs such as Roth IRA claimed that they’ve earned double digits since the switch. Nevertheless, being new to a self-directed IRA is like being new to work or school; without any awareness of the rules, it will be difficult to fit in. A self-directed IRA, when used properly, can be a great help in the long run.


Swapping Properties Through 1031 Exchange

After years of managing a residential real estate, landlords may find themselves exhausted with the whole process. Dealing with tenants, settling conflicts, preserving the grandeur of the structure – all of these can cause a lot of stress to entrepreneurs, especially to those who have seen better days. If you are one of the businessmen who would just like to take things easy, then swapping your properties with hassle-free ones can be the solution to your problems.

Entrepreneurs who have grown tired of their properties can do a 1031 exchange, which is a tax-deferred exchange that allows taxpayers to sell business property, income, or even investment, and replace it with a like-kind property. For instance, if you are a proprietor of an apartment building, you can choose to swap it with an industrial building if you feel like treading on a new business path or if you think it will be easier for you to handle.

Aside from allowing you to don a new hat as a corporate leader, a 1031 exchange is a wise tax and investment strategy that will help you save money to fund your other businesses or for safekeeping. However, there is a catch – the capital gains on the sale of the property will only be deferred or postponed if you follow IRS rules to the letter. As long as you are doing your job as a responsible taxpayer, then the odds will stay in your favor.