Does a REIT qualify for a 1031 exchange?
An investor is not able to do a direct 1031 exchange into a REIT since REIT shares are not considered “like kind” property by the IRS for the purposes of a 1031 exchange.
What qualifies as a like kind exchange?
Generally, any real estate property held for productive use in the trade or business or for investment qualifies for a like-kind exchange. … The asset being sold must be an investment property and cannot be a personal residence. The asset being purchased with the proceeds must be similar to the asset being sold.
What category is a REIT?
The two main types of REITs are equity REITs and mortgage REITs, commonly known as mREITs. Equity REITs generate income through the collection of rent on, and from sales of, the properties they own for the long-term. mREITs invest in mortgages or mortgage securities tied to commercial and/or residential properties.
What is a 1031 exchange REIT?
A 1031 Exchange is a specific type of real estate transaction that allows an investor to defer their liability on a taxable gain realized from the sale of an investment property. … On a standalone basis, using a property’s sale proceeds to purchase shares in a REIT is not permissible under Internal Revenue Code rules.
Can I 1031 into my own property?
Normally the IRS does not allow you to conduct a 1031 exchange with your primary residence. That’s because the home that you live in isn’t being used as an investment property or being held for business purposes. Instead, your primary residence is used to provide shelter for your family.
Is there an alternative to 1031 exchange?
Qualified Opportunity Zone Funds, allowed under the Tax Cuts and Jobs Act of 2017, are an alternative to 1031 exchange investing that offers similar benefits, including tax deferral and elimination. … This fund option also works if you are selling other appreciated assets, like stocks or businesses.
What Cannot be used in a like-kind property exchange?
Securities, stocks, bonds, partnership interests, and other financial assets are excluded from the definition of like-kind property. Many people believe that like-kind properties must be of the same size or type to qualify. But that’s not true—different assets can be exchanged as long as they qualify.
How long do you have to hold property in a 1031 exchange?
There’s no set minimum holding period for a property used in a 1031 exchange. The only requirement is that you owned the property with the intention to hold it as an investment.
Why REITs are a bad investment?
Drawbacks to Investing in a REIT. The biggest pitfall with REITs is they don’t offer much capital appreciation. That’s because REITs must pay 90% of their taxable income back to investors which significantly reduces their ability to invest back into properties to raise their value or to purchase new holdings.
Are REITs a good investment in 2021?
REITs stand alone as the last place for investors to get a decent yield and demographics favor more yield seeking behavior. … If one is selective about which REITs they buy, a much higher dividend yield can be achieved and indeed higher yielding REITs have significantly outperformed in 2021.
What are the three basic types of REITs?
REITs fall into three broad categories divided by their investment holdings: equity, mortgage and hybrid REITs. Each category can further be divided into three types that speak to how the investment can be purchased: publicly traded REITs, public non-traded REITs and private REITs.