They are thinking of selling the property into a 1031 exchange in order to avoid cap gains. I have no experience in this area, so I would like some opinions. Here is a brief description:
Questions:I want to sell the rental right away and avoid 75K-100K of Capital Gains Tax and Depreciation (will check with accountant on amount) by doing a 1031 Tax Deferred Exchange into a REIT (Real Estate Investment Trust), which will cost a little less than that. (10% + $1200). The sale of the property would cost about 9% of the $700-$850 that it is worth. So we should have about $650K to invest.
Other investments will not give us the ability to avoid Cap Gains, so we would only have $ about 575K to invest if we did not put it in a REIT. Think of the REIT as a stock that is fully liquid after 3 years.
We could get about the same $2000K per month from a $600K investment, growing about 4% per year historically. We could supplement our available dollars by selling some after 3 years (maybe before), and pay zero or low capital gains tax each year, at our income level. (He said cap gains was zero, 10%, or 15% based on income level).
[Wife] is concerned we would not be diversifying, but the minimum for a REIT is $500K and the other investments would mean paying capital gains on the balance.
The umbrella company for 1031 Capital Solutions is Concord Investment Services, which [broker] said is the Number 1 company in US for REIT volume. They have choices other companies do not have.
I am concerned the Seattle Housing market bubble may break as early as this March. I am concerned that all of our retirement funds are tied up in Seattle real estate. I am concerned about earthquakes and about ever more stringent and oppressive rules from the Seattle city council on landlords.
1) Is this a valid avoidance of investment property capital gains? Or is it a scam?
2) Any experience with this particular company, 1031 Capital Solutions?
3) How does realizing capital gains work if my in-laws die and still have the unrealized capital gain in their estate? Does the standard step-up basis rule apply?
4) Anything else to be aware of?