In this informative video, Jeremy Cyrier from MANSARD sits down with 1031 exchange expert Patty Flowers to discuss the ins and outs of using 1031 exchanges for retirement planning. Jeremy introduces Patty as his go-to expert for all things related to 1031 exchanges and explains that they wanted to address a common question they receive: how to retire from real estate investments without paying hefty taxes.

Patty explains that a 1031 exchange is an estate planning tool that allows investors to defer up to 100% of taxes when selling a property. The goal is to reinvest the proceeds into equal or greater value properties. She discusses various scenarios where investors might buy single tenant triple net lease properties for income and also consider purchasing a primary residence for retirement using a 1031 exchange.

The conversation delves into the specific requirements and regulations surrounding the use of a 1031 exchange for setting up a primary residence. Patty explains that a residential rental property can qualify as a like-kind exchange, but it must be rented for at least two calendar years. She details the IRS regulations regarding personal use and rental periods during the first two years of ownership.

Jeremy and Patty discuss the transition from investment use to personal use, commonly known as converting the property. They clarify that no taxable event occurs when converting the property into a primary residence. However, they note that reporting changes are required, such as the cessation of rental income and depreciation on tax returns.

Furthermore, Patty highlights the proration of the primary residence exemption when selling a property that was previously a 1031 exchange. The IRS regulations dictate that the exclusion will be prorated based on the total period of ownership and the time spent renting versus personal use.

The video also explores the option of reinvesting the property back into the rental market after living in it as a primary residence, allowing for potential future exchanges. Jeremy and Patty touch on the importance of estate planning and the stepped-up basis benefit, which can eliminate capital gains tax liability for heirs when the property is passed down upon the owner’s death.

00:05 – Introduction
01:06 – Exploring the 1031 exchange for retirement planning
02:45 – Requirements for 1031 exchanges and mixing property types
04:42 – Regulations for using a 1031 exchange to set up a primary residence
06:35 – Converting the property to a primary residence and tax implications
08:26 – Proration of the primary residence exemption and taxable gains
09:47 – Using a 1031 exchange to save on taxes and the stepped-up basis benefit
11:59 – Exploring the estate planning benefits of a 1031 exchange
13:37 – Conclusion and contact information

Patricia A. Flowers, CES®
Vice President
Toll-Free: (877) 781-1031
Cell: (617) 899-4718
Direct: (617) 423-1031
Toll-Free Fax: (888) 310-1868

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