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By: A collaborative effort brought to you by Ian Lazarus, CRS
It was 2006 and I was traveling the Midwest talking to advisors who were helping farmers sell their highly appreciated properties and consolidate their otherwise complicated life into a predictable stream of retirement income, all without paying a cent of capital gains tax. Well, that party ended when the real estate market crashed.
Fast forward to a market that has put the real estate crash in the past, on the east coast, we have a large group of aging baby boomers who have a similar challenge as the farmers that came before them…but this time it’s highly appreciated rental property on the New Jersey and Delaware coastline. Many investors are planning a move down south and no longer want to manage a property a plane ride away. Others are tired of getting phone calls at 2am about a running toilet or busted hot water heater. Some would like to own a smaller investment property than what they currently own. Or maybe the market has peaked and it’s time to get out. Regardless of their reasons, they all have a similar problem. Uncle Sam!
For those unfamiliar with the IRC 1031 like-kind exchange strategy, the time restrictions and other potential tax-triggering pitfalls seem far too daunting to even consider. For those well seasoned in the art of 1031 exchanges, it no longer seems like a viable strategy given their desire to start downsizing their properties, which would trigger a tax liability. Or, they just don’t want to be a landlord anymore. Unfortunately, most owners think they have only two choices; a) bite the bullet and keep your property or b) sell and pay taxes, sometimes upwards of 50% of your sale proceeds!
Good news, you have a third choice that may solve all of your problems. Let me explain using a recent case I helped solve. John Walton (name changed to protect the innocent) has owned a shore home for almost 30 years. His adjusted cost basis after depreciation is almost zero. And his expected sales proceeds, after debt pay-off, was supposed to be about $2,000,000. But, he was expecting to have to pay total taxes of $940,000! For a retired guy to generate income on his after-tax proceeds of $1,060,000 at today’s rates, he could only expect about $42,400 per year. That’s terrible considering he was collecting net income of over $100,000 before he sold. We encouraged him to consider a 1031 exchange, but rather than finding another property to privately own, we identified two apartment complexes professionally-managed and owned within a Delaware Statutory Trust (DST for short). And, by owning beneficial shares of this DST exactly matching his sales proceeds and with a loan-to-value ratio higher than his shore home, we deferred 100% of the taxes due. More importantly, with 100% of his proceeds invested in the DST, we were able to generate a tax-favorable income of $110,000 (5.5% yield) and eliminate all the hassles of being a landlord.
So, what’s the catch you ask? Well, all the same rules apply to a 1031 using a DST as they do with any other 1031 exchange. However, there are some differences between DST ownership and private ownership.
I used the example of my client buying apartment complexes. But DST’s are not limited to a single sector of real estate. At any given time, we have inventory in student housing, triple-net retail, office, industrial, self storage, and hospitality.
If you have ever considered selling your investment property at the shore, but something has stopped you in your tracks, please consider reaching out to our team to discuss your specific situation. We can bring a team of real estate, financial planning, tax, and legal advisors to you or we are happy to work in tandem with your existing advisors. Either way, knowledge is power. And power leads to a lifetime of financial freedom.
1 – IRS Guidelines: How Many Days Are You Using the Home for “Personal Use”?
In order to deduct the mortgage interest on your vacation home as “qualified home mortgage interest”, you need to use the vacation home for your own “personal use” for the greater of:
For example, if you rent out the property for 100 days per year, you’d need to live there for at least 14 days per year. On the other hand, if you rent out the property for 200 days per year, you’d need to live there for at least 20 days per year. Keep in mind that “personal use” includes use by immediate family members including your spouse, brothers and sisters, half-brothers and half-sisters, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.).
2 – Lending Guidelines: Do You Have Control of the Property?
You may still be able to treat the property as a second home for mortgage approval purposes if you rent it out for part of the year. In this case, conventional lending guidelines require that:
Of course, there may be other rules that need to followed. Contact me for more information.
PLEASE NOTE: THIS ARTICLE AND OVERVIEW IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL, TAX, OR FINANCIAL ADVICE. PLEASE CONSULT WITH A QUALIFIED FINANCIAL OR TAX ADVISOR FOR SPECIFIC ADVICE PERTAINING TO YOUR SITUATION.
First Choice Loan Services Inc. (NMLS# 210764), a Berkshire Bank Company (NMLS# 506896 | Member FDIC), is located at One Tower Center, Floor #18 East Brunswick, NJ 08816. First Choice Loan Services Inc. is registered or exempt from state licensing in the states it originates mortgage loans. Licensed by the NJ Department of Banking and Insurance. AZ BK#0918586. First Choice Loan Services Inc. is not an agency of the federal government and is not affiliated with your current lender.
Featuring endless opportunities to eat, drink, shop, and pamper your way through Sea Isle City, Girls Weekend is the perfect getaway for you and your girlfriends. With more than 40 participating businesses, the event includes three full days to take advantage of huge discounts on retail, salon and fitness services, restaurants, lodging and more. Don’t miss out on the event that only happens twice per year!
It should be a beautiful Easter weekend in Sea Isle City. The Sea Isle City Chamber has a list of places open.
5900 Landis Ave., 609-486-5455, amodomioristorante.org
Open Wednesday through Sunday at 4:30pm
4216 Park Rd., 609-263-5001, andreatrattoria.com
Open Wednesday through Saturday 11am-2pm for lunch & 4-9pm for dinner
5012 Landis Ave., 609-263-1868, azzurrapizzeriasic.com
Open Friday and Saturday 11am-10pm and Sunday 11am-9pm
27 43rd St., 609-263-1010, basilicosristorante.com
Open Thursday through Sunday at 5pm
18 JFK Blvd., 609-263-4271, bracacafe.com
Open Thursday and Friday at 5pm, Saturday and Sunday at noon for lunch and dinner
4000 Landis Ave., 609-263-2277
Open Friday and Saturday at 4pm
201 Willard Rd., Strathmere, 609-263-2080, deauvilleinn.com
Open Friday through Monday at 11am and Tuesday through Thursday at 2pm
4009 Landis Ave., 609-263-8411, diamondsliquor.com
Open Wednesday, Thursday, Friday and Sunday noon-8pm and Saturday 10am-9pm, Closed Mondays and Tuesday
8600 Landis Ave., 609-263-3627, docmagrogans.com
Open Easter weekend Thursday through Sunday, serving Easter brunch; weekends Friday and Saturdays through Mother’s Day
63rd St., 609-263-6341, kixmcnutleys.com
Open Monday through Thursday 9am-10pm, Friday and Saturday 9am-1:30am, and Sunday 10am-10pm
4000 Landis Ave., 609-263-3756, lacosta-seaisle.com
Open daily at 9am, Sunday at 10am
5000 Landis Ave., 609-486-6088, lafontanacoast.com
Open Easter weekend Wednesday through Monday at 4pm
1 Ocean Dr., Strathmere, 609-263-7700, lafontanadelmare.com
Open Thursday through Sunday at 4pm
318 42nd Pl., 609-263-3000, thelobsterloft.com
Open Thursday through Saturday at 4pm, Saturday serving 2 for 1 dinners $29.99 and weekend specials
108 44th St., 609-263-3814
Open Easter weekend Saturday and Sunday 7am-1pm, weekends through Memorial Day
4222 Park Rd., 609-263-1136, mikesseafood.com
Open Friday and Saturday 9am-7pm, open daily in May
3915 Landis Ave., 609-263-1000, theod.com
Open Easter weekend Friday at 7pm, no cover and Saturday at 6pm, no cover
3907 Landis Ave., 609-263-5600, odonellspourhouse.com
Open every Friday and Saturday night serving dinner from 5-9:30pm
4107 Landis Ave., 609-741-1021
Open weekends beginning in April
4001 Landis Ave., 609-263-2000
Open Easter weekend Saturday and Sunday at 8am, Be our Guest Breakfast on Saturday, Breakfast with the Easter Bunny Sunday
3800 Boardwalk, #1, 609-263-4951
Open weekends in April Saturday 11am-6pm and Sunday 11am-4pm
4005 Landis Ave., 609-263-6200
Open weekends Saturday and Sunday 8am-2pm
3600 Boardwalk at the Spinnaker Shoppes, 609-263-3200
Open Friday 11am-4pm, Saturday 10am-4pm and Easter Sunday 10am-1pm
3914 Pleasure Ave., 609-263-1313
Open Saturday and Sunday, 10am-5pm
4204 Landis Ave.,609-263-1748, breezinup.com
Open Friday Saturday and Sunday, 10am-5pm
4110 Landis Ave., Suite B 609-439-3800, coastalpalmsboutique.com
Open Easter weekend Friday noon-5pm, Saturday 11am-5pm and Sunday 11am-3pm. April weekend hours Saturday 11am-5pm and Sunday 11am-3pm. Extended Girls Weekend Hours
3814 Landis Ave., 609-263-6700, groovygirlz.com
Open Easter weekend Friday and Saturday 10am-6pm and Easter Sunday 10am-3pm
Open Monday through Saturday 10am-6pm and Sunday 10am to 5pm
3500 Boardwalk at the Spinnaker Shoppes, 609-263-6464
Open Saturday 10am-4pm
28 JFK Blvd., 609-263-7140
Open Easter weekend: Friday 11am-5pm, Saturday 10am-6pm, and Sunday 11am-3pm
3514 Landis Ave., 609-432-2822, forza.fit
Open daily, easter weekend classes, Friday Aerial Yoga at 10am and Saturday tough glove boxing at 8:30am
JFK Blvd. & the Beach, 609-602-3398, njbeachyoga.com
Yoga Flow on Good Friday at 7:30am at Community Lodge
3918 Landis Ave., 609-263-8805, salonshannonleigh.com
Open Tuesday through Friday 9am-9pm, Saturday and Sunday 8am-5pm
5900 Landis Ave., 609-263-9023, trainwithcheryl.com
Open via key tag entry 365 days a year
3033 Dune Drive, Avalon, 609-967-5800, allisonvaltriinteriors.com
Open Monday through Saturday 8:30am-4:30pm
4000 Pleasure Ave., 609-225-3143, anchoredinsic.com
Open Easter Weekend Friday and Saturday 10am-4pm (Closed Easter Sunday) Open weekends Saturday 10am-4pm and Sunday 11am-3pm
2847 Route 9, Oceanview, 609-624-1625, truevalue.com/gardener
Open Monday through Saturday 8am-5pm
6208 Landis Ave., 609-263-3351, sandsdepartmentstore.com
Open Monday, Tuesday, Thursday Friday and Saturday 9am-5pm, Sunday 10am-1pm, Closed Wednesday
3700 Boardwalk #9B, 609-263-3100
Open weekends in April. Friday through Sunday 10am-6pm. Open Easter Sunday 10am-3pm.
4208 Landis Ave., 609-972-5887, seaislecats.org
Open Easter weekend, Saturday 11am-3pm
335 47th Pl., 609-263-1747, maidsavailableservices.com
Open year-round, 24/7
PO Box 87 609-263-3195
Open daily 9am-5pm
Dan Mcquade recently wrote an article in the Press of Atlantic City titled, Is Carson Wentz Really Buying a House in North Wildwood?
But it’s the last paragraph of the story where things get really interesting, when writer Jack Tomczuk lets a little rumor drop about the development in the former location of Coconut Cove:
It’s even rumored that Philadelphia Eagles quarterback Carson Wentz is building a home in the development—but it’s unclear whether his presence will attract more commercial interest to North Wildwood’s gateway.
Yes, that’s right: Carson Wentz could soon own a summer home in the land of sand and Tully Nuts.
Another interesting aspect of this potential story, it that another NFL quarterback also spends some time in North Wildwood. As it was reported, during the Super Bowl Matt Ryan’s family has had a home there for decades.
“My family has had a house there for a long time,” Ryan said in a phone interview in November. “I enjoy spending a few weeks down there whenever I can.”
Well it doesn’t seem like anyone really knows whether Wentz is really purchasing a home but it could make for some interesting speculation around pick-up football games in North Wildwood.
The current forecast is calling for a temperature in the 50’s for Saturday’s Sea Isle City Polar Plunge. Hopefully, for all the plungers and spectators, the weather will stay pleasant.
(Will a temperature in the 50s mean a record crowd for the Polar Plunge?)
For all those brave enough to weather the winter conditions, it’s only 7 days to the annual Sea Isle City Polar Plunge. Hopefully, those taking the plunge will have weather like today, just over 50!
4404 Pleasure Avenue, Sea Isle City, NJ. New Price! Take a good look at this newer townhome with 5 BR’s, 4.5 baths, attached garage, 4 oceanview decks. Only 4 houses from the beach! Well maintained gas ht & central air systems, gas fireplace, hardwood floors and a low maintenance exterior. The gourmet kitchen features a center island with granite counter tops and ceramic tile backsplash. Spacious dining and living room with gas fireplace, plus 2 sliders to the main deck. This is alot of house for the money!! If rentals are your concern, this property is a money machine with over $62,000. for 2016. Click here for full details.