1031 Exchange Loan From $1,000,000
1031 Exchange Loan Rates - Rates updated December 11th, 2019
|Loan Product||Rates (start as low as)||LTV||Amortization|
|Commercial Mortgage Rates||3.98%||Up to 75%||Up to 25 years|
|Apartment Building Mortgage Rates||3.60%||Up to 80%||Up to 30 years|
|Business Real Estate Loans||3.78%||Up to 90%||Up to 30 years|
A 1031 Exchange is a technique used by real estate owners to defer capital gains taxes upon the sale of a commercial property as long as they purchase another qualifying commercial property within certain IRS delineated timelines. For example, let’s assume that the owner of a small apartment building wants to sell his building and buy a larger property. Without a 1031 Exchange, the owner would sell the property and end up owing capital gains taxes on the profit to the IRS. After paying taxes, the owner/seller could invest the remaining balance in a larger property. If the owner/seller utilizes a 1031 Exchange, all of the profit could be invested in the new property. All capital gains taxes would be deferred. 1031 Exchanges are also called Tax-Free exchanges, Tax Deferred Exchanges, Like Kind Exchanges, Real Estate Exchanges, Property Exchanges, IRS Exchanges, or Tax Deferred 1031 Exchanges. All of these terms are commonly used to describe this process of deferring taxes. The common element is that one property is sold and another similar or “like kind” purchase is made immediately afterwards. Luckily for real estate investors, the new GOP sponsored tax plan which went into effect at the end of December 2017 did not limit the use of 1031 exchanges for real estate transactions. Other asset classes were affected by the new law, but real estate exchanges were kept in place. Also beneficial for real estate investors was the doubling of the estate tax exemption to $22.4 million for couples. This change allows investors to keep trading up using 1031 exchanges and 1031 exchange financing and not pay taxes upon death of up to $22.4M in profits. (Please note that this short synopsis is not meant to render tax or legal advice. You should always consult your attorney and tax professional for specific advice.)
At Select Commercial, we help real estate professionals with 1031 Exchange Financing by offering commercial mortgage loans to facilitate these transactions. Most often sellers sell a smaller property and look to trade up to a larger property. The money realized from the sale is often not enough to purchase the new property. We offer commercial mortgage loans to allow these owners to borrow additional funds and hence, buy bigger properties.
When a real estate owner sells business or investment property for a profit, he generally has to pay tax on the profit at the time of sale. Internal Revenue Code Section 1031 provides an exception and allows real estate owners to delay paying tax on the profit if he reinvests the proceeds in a similar property as part of a qualifying 1031 exchange (also called a like-kind exchange). Profits deferred in a 1031 exchange is tax-deferred, but it is not tax-free.
Q & A - 1031 Exchanges (Like-Kind Exchanges) – IRS Guidelines
Real estate investors who own investment and business property may qualify for a Section 1031 exchange. The 1031 exchange guidelines pertain to Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, and trusts.
With a Section 1031 exchange, there must be an exchange of properties. The simplest type of Section 1031 exchange is a simultaneous swap of one property for another. A real estate owner will sell one business or investment property and use the proceeds of the sale to purchase another similar property within the required timeline established by the IRS.
Both the property that you sell and the new property you purchase must meet certain requirements. Both properties must be used for business or for investment. Property used primarily for personal use, like a primary residence or vacation home, do not qualify for a 1031 exchange. Both properties must qualify as "like-kind." Like-kind property is property of the same nature, character or class. Most real estate properties are considered to be like-kind to other real estate. For example, if an investor sells a 4-unit home and purchases a large apartment building, those properties are still considered like-kind as both properties are classified as investment real estate.
While a 1031 exchange does not have to be an exchange of properties, you must meet two time limits. Failure to meet the timing guidelines will cause the entire gain to be taxable. These limits cannot be extended for any circumstance or hardship, except in the case of presidentially declared disasters.
First Time Limit: the seller of a property has 45 days from the date of sale to identify potential replacement properties. This identification must be in writing and signed. It must be given to a person involved in the exchange, such as the seller of the new property or a qualified intermediary. The new property must be clearly described and identified using a street address and/or legal description.
Second Time Limit: the new, or replacement property must be purchased, and the exchange completed, within 180 days after the sale of the original property.
The information provided here is not meant to be all inclusive and is presented for general discussion purposes only. Please do not rely on this information as authoritative. Please consult your attorney or tax professional for specific advice.
Apartment building loan rates start as low as 3.60% (as of December 11th, 2019)
Commercial mortgage loan rates start as low as 3.98% (as of December 11th, 2019)
• No upfront application or processing fees
• Simplified application process
• Financing up to 80% LTV
• Terms and amortizations up to 30 years
• Long term fixed rates
• Loans for purchase and refinance, including cash-out
• 24 hour written pre-approvals with no cost and no obligation