Ways to Defer Capital Gains Tax Exposure When Selling Investment Properties

With the new year upon us, many of us are thinking about taxes. While it’s too late to strategize for 2018, let’s look at tax strategies going forward.

Owners of duplex, triplex and small multi-unit properties sell their properties for many reasons. Sometimes an owner wants to leverage equity into another property with better upside potential or a higher return on their investment or into multiple income producing properties.

Perhaps a duplex property was inherited but the responsibility of being a landlord has become overly burdensome. Whatever the situation, there are times when selling a multi-unit rental property and transferring the equity into an alternative “hands-off” type of investment makes sense. You can defer your capital gains tax obligations and keep your pre-tax capital growing for you by utilizing one of these IRS-approved options.

1031 Real Estate Exchange: The 1031 real estate exchange is a tax-deferral strategy that applies to investors who have sold or are about to sell investment real estate. This strategy allows a client to defer capital gains tax on all sales proceeds that are reinvested into other investment real estate properties, as long as the seller:

1) does not take “constructive receipt” of the funds within the exchange transaction.  This means that the proceeds must go directly to a “qualified intermediary” and not at any point be in the seller’s own bank account.

2) meets all requirements outlined in the Internal Revenue Code.

721 Exchange: Less well-known than the 1031 exchange, the 721 exchange is another tax-deferral strategy which applies to investors who have sold or are about to sell investment real estate. This strategy is similar to the 1031 exchange but allows an investor to exchange his property for an interest in a diversified real estate portfolio known as a Real Estate Investment Trust (REIT). As with the 1031 exchange, the seller must not take constructive receipt of the sales proceeds within the transaction.

Delaware Statutory Trust is offered as replacement property for those seeking to defer capital gains taxes via a 1031 exchange. The DST allows for fractional interest ownership in various managed commercial properties with other investors, as individual owners within a Trust. Each owner receives a share of the cash flow income, tax benefits, and appreciation of an entire property. There is potential for annual appreciation and depreciation. Investments begin at $100,000 and allow investors to diversify into several properties.

Deferred Sales Trust is a tax-deferral strategy that applies to many different capital gains situations. These include the sale of a business, real estate, stocks, or bonds, as well as the maturity of principal on a note or carry-back, and even applies in certain debt forgiveness situations. The Deferred Sales Trust is different from the 1031 and 721 exchanges in that it does not require any reinvestment of the sales proceeds into real estate. It is similar to 1031 and 721 exchanges insofar as an investor cannot take constructive receipt of the funds within the transaction.

For expanded, detailed information on each of these tax strategies, visit www.DuplexAlerts.com and click on the  “Sellers” tab in the main menu.

Always consult with your tax or wealth management professional when considering the sale or purchase of an investment property.

A quick caveat:  Neither I nor any agent at Golden Real Estate is a CPA or tax advisor.  Broker associate Andrew Lesko did the research for this article.  Email Andrew at Andrew@GoldenRealEstate.com or 720-710-1000 with your questions or comments.

Golden Real Estate Launches Sustainability Series

As you may already know, Golden Real Estate is a leader in sustainability, as expressed in the value statement printed on all our yard signs: “Promoting and Modeling Environmental Responsibility.” And most of our agents, including myself, are Certified EcoBrokers, having taken extra training in all aspects of sustainability as it applies to real estate.

We’d like to share what we’ve learned with you, so we’re launching a Sustainability Series that will take place on the third Thursday of every month in our office.  We can accommodate 20 or more attendees in our office, but we will move it elsewhere if the demand exceeds our capacity, so please RSVP. You can do so now for all sessions.

Each meeting will focus on a single aspect of sustainability. Here’s the schedule for the first six meetings (subject to change):

Jan. 17th — Home Insulation — Walls, windows, foundations, crawl spaces, attics. (This is a bigger topic than you might think, but it’s also the cheapest and most effective path to reducing energy consumption.)

Feb. 21st — Home Heating Methods — Forced air, heat pumps, radiant floor, solar thermal, and other technologies.

Mar. 21st — Solar Power — Rooftop and ground-mounted photovoltaic, solar gardens, solar panels vs. solar roof tiles, and home battery storage/backup.

Apr. 18th — Electric Vehicles — What’s here now and what’s coming soon in cars, trucks, motorcycles and more.

May 16th — Sustainable Renovation — What are the more sustainable and popular materials and designs?

June 20th — Water Conservation — The latest concepts and products for conserving water use, both indoors and outdoors.

All sessions are 1 hour long and begin at 5 p.m. in our Golden office or nearby if a larger space is needed based on the number of reservations received. The sessions will be led by experts in the field, although you can count on me to add my own comments!

Go ahead and reserve your seat for any or all sustainability sessions now by sending an email to  Jim@GoldenRealEstate.com. We look forward to producing this informative series!

Golden Real Estate’s Sustainable Practices

1)   Our office produces more energy than it consumes. With our 20 kW of solar panels, we heat, cool and power our office and charge our six electric cars. We also provide free EV charging to the general public, yet our Xcel Energy bill is only $11.26/month.  At our request, Xcel removed our natural gas meter.

2)   We accept polystyrene from the public in our “Styrofoam Corral,” keeping over 200 cubic yards of the material out of the landfill every year.

3)   We use only LED light fixtures and have four “sun tunnels” (skylights) for naturally lighting our office.

Click here to read about our transition to “Net Zero” in our Jan. 4, 2018, column, “Promoting & Modeling Environmental Responsibility.”

Some Thoughts Regarding Characteristics to Look for When Hiring a Realtor

Recently one of our broker associates, Debbi Hysmith, while serving as a listing agent, encountered a buyer’s agent who was particularly abrasive. This agent accused the seller of be-ing dishonest and hiding material facts about the home, which Debbi knew to be false.  In that agent’s communication (which Debbi forwarded to the seller as required by law), this agent used language that was accusatory and unkind. 

The sellers were so offended by the agent’s communication that they were going to refuse all further requests and basically allow the contract to fall. But Debbi chose to remove emotion from the equation, put on a friendly face, and encouraged the sellers to look beyond the wording to respond to what was, in fact, a reasonable request.

In calming down the offended seller, Debbi explained that one never knows what experience a buyer may have had in the past and we should do our best to just stick to the facts of the request. The transaction was saved because Debbi was (as is her nature) friendly, helpful, respectful, and had good communication skills. In the end, both seller and buyer enjoyed a successful and happy closing — all because the listing agent was friendly.

This caused me to consider the importance of hiring a friendly agent like Debbi. While experience is valuable and should be considered when selecting a agent, it’s important to choose based on other factors, including personality. Remember, the person you use to buy or sell your home is representing you in the deal.  While having lots of experience is important, it’s not everything.

Here at Golden Real Estate, we have nine broker associates with varying degrees of experience. However, because we are a small — some might say “boutique” — brokerage, the more “seasoned” among us provide effective supervision and mentoring to the less experienced brokers at Golden Real Estate. Meanwhile I’ve noticed that some of our “least seasoned” agents, in fact, have enviable people skills. In that respect, I could probably learn from them!

So choose someone friendly, relatable and real (like Debbi) with whom you can have honest conversations. You’ll be spending a lot of time with your agent, communicating frequently via text, email, and phone.  Your agent will be representing you at open houses and over the phone talking to potential buyers and their agents.  If your agent is a poor communicator, the transaction will be less efficient and could cost you money (if not a closing) because the options are not effectively communicated to both sides.

There are three other important characteristics I suggest looking for when hiring an agent, whether to buy a home or sell your current home — or both. The first of these is authenticity. If you’re like me, you probably have a good BS meter, and you never want to work with someone who exaggerates, lies, or otherwise misrepresents who he or she is or their record of success.

I’m reminded of a quote from Earnest Holmes, who wrote, “It isn’t possible for a man to conceal himself.  In every act, word or gesture he stands revealed as he is, and not as he would have himself appear to be. From the Universe, nothing is or can be hidden.”

Another trait that I’d look for in an agent is a good sense of humor. Combined with a friendly attitude, a sense of humor can save a deal that otherwise might go south.  As we saw in Debbi’s story, how an agent presents an option is just as important as the option itself.

The third trait may be the most important.  You want your agent to be a good listener. Need I say more?  (Are you listening? )

In that regard, find an agent you can trust, who asks questions.  Most Realtors have access to the technology to get your property seen and sold, but it takes a human being to understand and work for your best interests.  You need someone who listens and understands all of the complexities of your situation and is honest and transparent about bringing all options to the table.  Ultimately this is your transaction and you should call the shots. 

Licensing Law Has Something to Say About This…

Your agent is working for you, in your best interest. This is not just a good idea, it’s spelled out in licensing law. You and I may use the word “agent” loosely, but when speaking legally, the term takes on special meaning. Let me explain..

Real estate brokers and broker associates can work with consumers in three different ways.  One is to have no client relationship with the broker, in which case the buyer is a “customer,” not a client.  An example of that is when a listing agent encounters a buyer at an open house, and that buyer is not working with another agent. Some listing agents will first enter an agency relationship with that buyer and double-end the transaction as a “transaction broker,” giving up their agent relationship with the seller and becoming a neutral facilitator of the transaction. An “agent” works exclusively for the benefit of his client with “utmost good faith, loyalty and fidelity.”

At Golden Real Estate, unless the listing agent has a pre-existing bona fide buyer agency relationship with the buyer, our brokers are required to treat the buyer as a customer and not enter into a client relationship. We don’t permit our agents to sacrifice their agency relationship with the seller for their own personal enrichment, but we also have incentives that they can offer to buyers who are willing to be a “customer” rather than a “client.”  These incentives take two forms.

First, our company policy is to offer a variable commission to our sellers.  That means that we discount our listing commission when we don’t have to share our commission with a buyer’s agent. Buyers can use that differential to their advantage. Second, since we have our own moving trucks, movers, moving boxes and packing materials, we can offer totally free moving (including gas for the truck) to a buyer who, by being a “customer,” allows our agent to earn a bigger commission. 

These two incentives usually suffice to make a buyer comfortable with being a customer, allowing us to retain the “agent” relationship with our seller.

Just Listed: 5-Bedroom Arvada Ranch on 0.97 Acres

This secluded ranch home at 7050 W. 61st Avenue sits on a cul-de-sac just minutes from downtown Arvada.  The 0.97-acre lot has a 900 square foot detached garage, a large out building previously used to raise geese, and a shed for extra storage.  Ditch water is used for irrigation. There is a holding pond and pump system installed for irrigating the lot. The home was recently painted and new gutters and roof were installed. The garden level basement was recently finished, including upgraded electrical and new carpeting. You can take a room-by-room narrated video tour (including drone footage) at www.ArvadaRanch.info.  Contact your agent or  listing agent Jim Swanson at 303-929-2727 for a private showing. Just listed at $589,000.

Looking Back at a Busy Year: Here Are Some Popular Columns From 2018

`Tis the season when it’s popular to reflect on the year that is drawing to a close, so here’s a collection of my favorite columns from 2018. If any of them strike your fancy, you can find links for each of them online at www.JimSmithColumns.com.

Jan. 4, 2018 — Golden Real Estate: ‘Promoting and Modeling Environmental Responsibility’ This column describes how we completed the transition from mere energy efficiency to a “net zero energy” office. 

Jan. 25, 2018 — Life Transitions Are at the Heart of Most Clients’ Real Estate Needs. Divorce, marriage, relocation, medical crises and becoming “empty nesters” are a few examples.

Feb. 1, 2018 — Here Are Some Obstacles (Real or Imagined) Faced by First-Time Home Buyers.  Down payment, credit issues, student loan debt, and unwarranted risk aversion are some of the obstacles covered. 

Feb. 22, 2018 — Owned Your Home for a Long Time? Here Are Some Ideas on Limiting Capital Gains Liability. Although not a CPA myself, I offer some advice such as “Don’t put your heirs on the title of your house — let them inherit it.” 

Mar. 8, 2018 — How Can Sellers Prepare for the Buyer’s Inspection? Here’s Some Practical Advice. The information in this column can help to save you money when the buyer asks for repairs. 

Mar. 15, 2018 — Buyers and Sellers Ask: Why Did the Appraisal Come in at Exactly the Contract Price?  This is a common question, and I help answer it this week. 

Mar. 22, 2018 — Off-Market Real Estate Sales Hurt Sellers by Shutting Out Buyers Who Might Pay More.  When someone offers to buy your house, treat it as an opening bid. You don’t want to sell your home to less than it’s worth, do you? 

Mar. 29, 2018 — How Can Buyers Win a Bidding War?  Here’s What Our Agents Do. It’s easy for agents to ask buyers to submit their “highest and best,” but an auction approach often nets you more money for your home. 

April 5, 2018 — What If Sellers and Their Agents Don’t Disclose Known Defects in Their Listings?  The new version of the Sellers Property Disclosure is a disservice to both buyers and sellers. I explain why. 

April 26, 2018 — Just in Time: A Breakthrough in ‘Rent-to-Own’ for Those Who Can’t Buy Now.  Golden Real Estate has an investor who will buy a home that is being offered for sale, then rent it you.  And you receive an 5-year option to buy!

May 3, 2018 — As Warm Weather Arrives, What Are the Different Ways to Cool a Home?  Alternatives to conventional air conditioning includes whole house fans, evaporative coolers and heat pumps.  

May 24, 2018 — What Is Title Insurance, and Why Do Buyer and Sellers Need It, Anyway?  This is typically your second biggest expense when selling a home. I explain its purpose. 

June 14, 2018 — Here’s Why You Shouldn’t Sell Your House Without Putting It on the Market.  To get the highest price, you need to expose your home to the broadest range of buyers possible, something that happens only if it appears on the MLS. 

June 21, 2018 — I Love to Write About Real Estate, But This Week It’s Personal.  This well-received column was about Donald Trump.  I just couldn’t stay silent any longer, and I was flooded with thank-yous for writing it. 

July 26, 2018 — The Home Buying Process: How It Works in the Internet Age. The role of the real estate agent has changed now that most buyers do their own online searching before calling their agent. 

Aug. 16, 2018 — Should the MLS Include a Condition Rating for Each Listing? Here’s How It Might Work. In this column, I explain how this could be done and how it would better serve buyers.  

Aug. 30, 2018 — What You Need to Know About Agents Who Claim to Have a Buyer for Your Home. They could be lying to get you to list with them.  

Sept. 13, 2018 — Don’t Make the Same Mistakes Made by Others When Trying to Sell Their Homes  Perhaps you’ll recognize some of these common mistakes.

Nov. 8, 2018 — Senior Homeowners Are at Risk of Being Conned/Scammed Out of Their Homes. This is a must-read! Too many seniors are falling victim to scammers.

Beverly Heights Ranch Updated & Back on the Market

1936 Sage Circle

Nestled in Golden’s Beverly Heights with mountain views, just uphill from the Colorado School of Mines campus, this one-owner, ranch-style, 5-bedroom/3-bath brick ranch is move-in ready!  With over 4,000 finished square feet, 2 wood-burning fireplaces, studio, flex space and walkout basement, this home is a must see!  Sellers have remodeled the home with new paint, doors, walls, trim, outlets, switches and lighting. If you have previously toured the home, take a second look. The clean, modern feel of the home is sure to impress!  The private backyard oasis is great for relaxing as paragliders float peacefully overhead with the famous “M” on Mt. Zion as your backdrop. Buyers can add their personal touch to the kitchen and bathrooms to create their forever Golden home. There’s RV parking, too!  More pix and info at http://www.BeverlyHeightsHome.info. Listed at $770,000 by Kristi Brunel. Call her at 303-525-2520 for a private showing.

Just Listed: Custom-Built Brick Ranch in Applewood

The 3-bedroom, 2-bathroom home below at 3221 Routt Street is located on a quiet cul-de-sac north of 32nd Ave. between Youngfield and Kipling. Built in 1986, it is offered for sale by its original owners, who have beautifully maintained it. The garden-level basement has lots of natural light and features a high-efficiency gas furnace with central A/C unit and a radon mitigation system, making it ready for finishing. The 2-car garage is both extra-wide and extra-deep, perfect for a home workshop. All kitchen appliances and the high-efficiency washer and dryer are included. The professionally landscaped backyard features a 12’x16’ covered deck with sun shades, three garden beds and a horseshoe pit!  Showings begin this Saturday, Dec. 22nd. View a narrated video tour at http://www.ApplewoodHome.info.  It will be open Sunday, Dec. 23rd, 11 a.m. to 2 p.m.    Listed at $525,000 by Jim Smith. Call him at 303-525-1851 for a private showing.

Statistics Seem Not to Reflect a Coming Slowdown in the Real Estate Market

By JIM SMITH, Realtor

Because of recent national and regional reports that the real estate market is changing from a seller’s market to a balanced, or even a buyer’s market, I have drilled down into the statistics for real estate activity in Denver and Jefferson County, looking for evidence of that shift. After all, as in politics, all real estate is local, and even reports about Metro Denver’s real estate market don’t necessarily reflect what is happening in each of the metro area’s six counties.

So, are the Denver and Jeffco real estate markets changing from a seller’s market to a balanced or buyer’s market?  The answer appears to be “yes,” as I’ll show below, although the data in the 25-month charts above provide no indication of a coming slowdown. While 25 months might seem like an odd timeframe for a chart, I used it so you could compare this November (on the outer right) with November 2016 (on the outer left) as well as all the months in between.

Two measures of a market’s health are the trends in median sold price and the median days on market. The charts show continued year-over-year increases in the median sold price in both Denver and Jefferson County and only seasonal changes in the days on market. When median days on market are this low — ranging from 5 to 16 days in both Denver and Jefferson County over the past two years — you know it’s a seller’s market.

However, the listings that are currently active or under contract and those which have sold thus far in December suggest that, from a purely mathematical standpoint, 2019 statistics will document a shift in Denver’s and Jeffco’s real estate market.

As I write this on Tuesday, December 11th, there are 1,832 active Denver listings on REcolorado. The median days on market of those listings is 54, more than triple the median days on market for last month’s sales. There are 1,230 Denver listings that are under contract, and their median days on market is 24.  Of the 200 Denver listings which closed between December 1st and 11th, the median days on market was only 20.  Clearly, as those currently active and under contract listings change their status to “sold,” the median days on market will rise significantly by month’s end and into 2019.

The figures for Jefferson County mirror those of Denver. Median days on market for active listings is 42, median days on market for under contract listings is 25, and median days on market for listings sold December 1st to 11th is 19. As with Denver, it’s safe to say that Jeffco’s market has already begun to slow, and statistics will reflect that in coming months. 

If you’re thinking of selling your home, don’t let yourself be blindsided by this evolving market. You can still sell a home quickly in a slowing market, but only if you price it correctly. As I have written before, you can’t underprice a home, because competing offers will drive the price upward. And by pricing your home correctly, you’ll benefit from those competing listings that were not priced appropriately. Call me or another Golden Real Estate agent at 303-302-3636 if you’d like advice on pricing your home to sell.

West Denver Bungalow Is Close to Light Rail Station

This home at 735 Perry Street would make a good starter home or fixer-upper.  Along with a new roof and recently serviced forced-air furnace, the home’s interior just received a new coat of paint. The next owner can freshen things further by refinishing the hardwood floors. The nice-sized yard is fenced and has two sheds and sprinklers both front and back. The exterior needs paint, and the bathroom is dated. Access to the Lakewood Gulch Trail is just two blocks north, and the Perry Street station of the light rail’s W Line is two blocks further north in the Lakewood/Dry Gulch Park.  You can view more photos and take a narrated video tour at www.WestDenverHome.info, or stop by the open house on Saturday, Dec. 15th, 11am to 2pm.  It was just listed this week for $280,000 by David Dlugasch.  Call David at 303-988-4835 to arrange a private showing.

Applewood Brick Ranch Has a Finished Walkout Basement

Click on the narrated video tour below to tour this 4-bedroom, 4-bath home at 3315 Beech Court, located in the part of Applewood that’s west of Interstate 70.  It’s near the end of a quiet cul-de-sac, across 32nd Avenue from  Manning Middle School and Maple Grove Elementary, just east of Applewood Golf Course. The Applewood Shopping Center, with its stores and restaurants, is just a half-mile away. With this home’s convenient access to I-70, you can be in downtown Denver in less than 30 minutes or reach the ski slopes of Summit County in about an hour.  After watching the video tour, check out the magazine-quality photos at www.ApplewoodHome.info, then come to the open house on Saturday, Dec. 15th, from noon to 2 pm.