1031 Exchanges in Fremont, CA

What the numbers say for investors in Fremont, Newark and Union City

• Fremont houses (863 sold): median price $1,715,000, a typical 10 days on the market, about 64% sold above list.
• Fremont condos and townhomes (393 sold): median price $835,000, a typical 25 days on the market, about 31% sold above list, median HOA dues about $450 a month.
• Newark houses (253 sold): median price about $1,411,000, 14 days, about 51% above list.
• Newark condos and townhomes (109 sold): median price $820,000, 18 days, about 41% above list, median HOA dues about $513 a month.
• Union City houses (238 sold): median price $1,400,000, 13 days, about 60% above list.
• Union City condos and townhomes (63 sold): median price $650,000, 23 days, about 37% above list, median HOA dues about $370 a month.

How a 1031 exchange works: the federal rules

• Real property only. Since 2018, only real property qualifies for a like-kind exchange. Equipment, vehicles, collectibles and similar assets generally do not.
• Investment or business use. Both the property you sell and the property you buy must be held for investment or used in a trade or business. Property held primarily for sale does not qualify. Your own home is treated differently, and its sale falls under other rules, such as the home-sale exclusion.
• Like-kind. Most U.S. real estate is like-kind to other U.S. real estate, even if the properties differ in grade or quality. For example, a rental house can be exchanged for a condo, a duplex or land. U.S. property is not like-kind to property outside the U.S.
• A qualified intermediary. In a delayed exchange you generally do not take possession of the sale proceeds. A qualified intermediary holds the money between the sale and the purchase. You arrange this before the sale closes.
• 45 days to identify. You must identify replacement property in writing within 45 days after you transfer the property you gave up.
• 180 days to close. You must receive the replacement property within 180 days after the transfer, or by the due date of your tax return for that year, including extensions, whichever is earlier. The two periods run at the same time, and the deadlines are strict.
• Boot is taxable. If you receive cash or other property that is not like-kind, you generally have to recognize gain up to its value. Money you do not reinvest is a common example.

What California owners should know

Finding replacement property in Fremont, Newark and Union City

• Start early. Before you list, we look at what is available and what your goals are, so you are not starting from zero on day one.
• Define what you want. Decide whether you want a house, a condo or townhome, or a small multi-unit property, and what matters most: lower upkeep, a different location, or a different price. I help you compare the three cities.
• Look at the whole cost. For condos and townhomes, HOA dues, reserves, special assessments and rules affect your numbers. For older houses, we check the roof, systems and permits. See my fixer-upper articles for what to check in an older home.
• Understand the financing. Your lender will look at the property you buy, and a home that needs work may need a different loan. Talk to a lender early, and ask how the exchange timing affects your loan.
• Name backup properties. You identify replacement properties in writing, and you generally need to close on one of them. Ask your tax advisor and intermediary how many you can name and how the identification rules work, so that you have a backup if your first choice falls through.
• Write clean offers. Because the closing deadline is firm, we use realistic closing dates and allow time for inspections and loan approval.

Common mistakes to avoid

• Waiting too long to line up an intermediary. You arrange a qualified intermediary before the sale closes. Once you receive the proceeds, the exchange can fail.
• Touching the money. Do not take possession of the sale proceeds, even briefly. Your intermediary handles them.
• Missing the 45-day or 180-day deadline. The IRS says the replacement property must be identified within 45 days and received within 180 days, or by your return's due date if that comes first. A missed deadline can make the gain taxable.
• Buying property that does not qualify. The replacement property has to be held for investment or business use, and it has to be U.S. real property.
• Ignoring California reporting. If you buy out of state, the FTB expects Form FTB 3840 each year until the gain is recognized.
• Skipping the tax advisor. The details depend on your basis, depreciation, entity type and plans, and those are questions for a CPA or tax attorney.

A step-by-step timeline

• Before you list: build your team. Talk to a CPA or tax advisor, choose a qualified intermediary and talk to a lender if you will finance the replacement property.
• Before you list: plan the numbers. I estimate what your property could sell for, you and your CPA estimate the gain and what you want to reinvest, and we decide on a target for the replacement property.
• Start looking. We review what is on the market in Fremont, Newark and Union City, so your search is already under way when your property goes under contract.
• List and sell. I price and market your property, and we review offers on price, timing and terms.
• Before closing the sale. Your intermediary signs the exchange documents. The sale closes, and the proceeds go to the intermediary, not to you.
• Days 1 to 45. You identify replacement property in writing to your intermediary, following the rules your advisor gives you.
• Days 1 to 180. You complete the purchase of the replacement property, no later than 180 days after the sale or your return's due date, whichever is earlier. We schedule inspections, financing and closing to fit.
• After closing. You and your CPA report the exchange on Form 8824 with your tax return and, for an out-of-state replacement, file Form FTB 3840 with California.

1031 exchanges in Fremont: common questions

Thinking about a 1031 exchange in Fremont?

• Phone: (510) 737-2220
• Email: travis@vantvoort.com