About Canyon View Capital
Frequently Asked Questions
FAQS
An accredited investor is a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience. The term is used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings. Accredited investors include natural individuals, banks, insurance companies, brokers and trusts.
Accredited Investors will meet at least one of the following requirements: Current and expected income equals or exceeds $200,000 per year if single or $300,000 per year if married
-Or-
Current net worth exceeds $1 Million, excluding the value of your primary home.
Click HERE to determine if you are accredited or not.
For more information specific to investing with Canyon View Capital, please email investorrelations@canyonviewcapital.com or call us at 831.480.6335.
SEC regulations prohibit us from publishing earnings on a public site. We welcome your questions and encourage you to call us at 831.480.6335.
An investor must meet the minimum requirements and be a good fit for the investment. One minimum requirement is investors must be accredited for the funds that are currently open for investment. An accredited investor is a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience. The term is used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings. Accredited investors include natural individuals, banks, insurance companies, brokers and trusts.
Click HERE to determine if you are accredited or not.
Canyon View Capital partners with Strata Trust Company as Trustee/Custodian to transfer your IRA(s) into our CVC Income Fund. For more information specific to investing with Canyon View Capital, please email investorrelations@canyonviewcapital.com or call us at 831.480.6335
An investor must meet the minimum requirements and be a good fit for the investment. One minimum requirement is investors must be accredited for the funds that are currently open for investment. An accredited investor is a person or entity that can deal with securities not registered with financial authorities by satisfying one of the requirements regarding income, net worth, asset size, governance status or professional experience. The term is used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings. Accredited investors include natural individuals, banks, insurance companies, brokers and trusts. Click HERE to determine if you are accredited or not.
The minimum investment for either fund is $250,000. This may be in the form of a cash investment or an IRA/SEP/ROTH rollover. For more information specific to investing with Canyon View Capital, please email investorrelations@canyonviewcapital.com or call us at 831.480.6335.
Our CVC Balance Fund (B Shares) is a tax-deferred fund and offers passive losses to offset passive income and available for cash investments only. Click here to learn more. The CVC Income Fund (A Shares) is a fully taxable fund (as portfolio income) and is available for both IRA/SEP/ROTH rollovers and cash investment. Click here to learn more
CVC’s founder and CEO, Robert (Bob) Davidson, started investing in real estate with his partners in the early 1980s. In 2001, we were incorporated as MyRetirementAssets, then rebranded under the current name of Canyon View Capital in 2012. For more information and inquiries regarding Canyon View Capital, please email investorrelations@canyonviewcapital.com or call us at 831.480.6335.
No, but they are generally available. We will make every effort to work with you and create a good two-way communication on this complex process. There are windows for naming and closing a 1031 exchange that must be adhered to qualify for the 1031 tax deferred advantages. To discuss your individual situation with Canyon View Capital, please email investorrelations@canyonviewcapital.com or call us at 831.480.6335.
Counter to a “buy-and-flip” acquisition philosophy that is quite common in the West and East coasts, CVC’s investment strategy is, instead, rooted in a “buy-and-hold” philosophy proven to deliver steady, attractive returns over the long term for our investors. We invest in America’s heartland—the Midwest and Midsouth regions of the US—and apply our value-investing philosophy with each of our acquisitions. For more information regarding our overall strategy and earnings, please email investorrelations@canyonviewcapital.com or call us at 831.480.6335.
Yes. We are happy to email this and other specific information specific to investing with Canyon View Capital, please email investorrelations@canyonviewcapital.com or call us at 831.480.6335.
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Like many generations of Americans, you’ve probably been told how important it is to save for the future. As fewer contemporary employers offer pension benefits to employees, investing in a trusty 401(k) fund has become one of the most common methods for putting money aside. While these, along with other retirement-focused savings accounts1, have historically provided steady, consistent gains2, recent factors like market volatility and rising inflation3 have cast doubt on their reliability.
Moreover, many folks interested in diversifying their investment portfolios may feel stuck, lamenting that most, if not all of their savings are tied up in a 401(k) or individual retirement account (IRA) until their golden years.
I’ll let you in on a secret, though: most 401(k)s (and some other retirement funds) can be rolled over into real estate investments to help diversify your portfolio, whether or not you’re in your golden years. Adding such variety to your investment strategy could help you target more stable returns, although nothing is ever guaranteed with investing. Below, we’ll discuss how exploring such 401(k) investment options could be the solution you need to augment your portfolio and release you from feeling trapped by a single investment path.
The Importance of Investing for Retirement
When you decide it’s time to stop working, your future will rely on whatever financial security your retirement accounts can provide. It’s difficult to overstate the importance of such assets, though many Americans4 rely — almost unconsciously — on their employer’s plan to set money aside for retirement.
Retirement accounts make sense. Social Security alone is not likely to provide the income level you need to sustain the retired lifestyle you imagine. Instead, you can designate a pre-tax percentage of your paycheck for retirement. Depending on the plan’s details, some employers offer to match your contributions, up to a certain percentage.
Retirement accounts also let you defer paying (income) tax on your contributions until they are withdrawn, which can help reduce your annual tax bill. Some of the most popular retirement accounts include 401(k)s, traditional IRAs, ROTH IRAs (named for late Delaware Senator William Roth), and Simplified Employee Pension (SEP) IRAs. The table below should help you make better sense of this alphabet soup.
| Comparison: Retirement Account Types | |||
| Account Type | Summary | Pros | Cons |
| 401(k) | Standard employee savings plan. Accessible option that contributes a percentage of each paycheck. Employers may match contributions. |
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| Traditional IRA | Pre-tax savings plan. Similar to 401(k) benefits, but lower contribution limits. More flexible option: offered by banks, brokerages, or investment firms, they can use your savings to invest (in stocks, bonds, or real estate). |
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| ROTH IRA | Similar to traditional IRA, but with inverse tax benefits. With traditional, pre-tax IRAs, you only pay tax when you withdraw money. With a ROTH IRA, you pay tax on contributions but can withdraw money without a tax penalty. |
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| SEP IRA | Simplified employee pension (SEP) IRAs: usually self-employed individuals & small business owners. Similar to a traditional IRA, but allows for larger contributions.Employers can contribute up to 25% of an employee’s income (max. $61,000); self-employed can contribute up to 25% of net income.For employers, employees are 100% vested in contributions, unlike 401(k)s. |
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401(k) Real Estate Investment Options to Consider
If you’re reading this article, chances are you’ve already done the math and realized that relying on a single retirement savings vehicle may not be enough to meet your financial goals — even with the best planning available. Traditional retirement investments are heavily swayed by market factors, therefore it’s nearly impossible to predict what the market will be like when you’re ready to retire and pull those funds out.
If you’ve been contributing consistently, maxed out your allowances, and still haven’t come up with the returns you need to see, these 401(k) real estate investment options could be an alternate path to success.
Roll It Over
Before you start viewing properties to buy, you need to make sure you can access the capital you want to invest. For so many people, that money is just sitting in a 401k — or more than one, if you left one behind with a previous job. 
That’s why you need to know how to roll your 401(k) account(s) into the more flexible format of an IRA. Since 401(k) funds are essentially fixed in their application, you can’t really move the money around. This is where rollover 401(k)s — 401(k) funds from previous employers — come into play.
When you leave a job or find new employment, the IRS gives you 60 days, starting the day you receive a new IRA or retirement plan, to roll those funds into your new plan, or a different kind of IRA.
Rolling 401(k) funds into a self-directed IRA generally gives you greater flexibility in deciding how to use them. If, for example, you opt to use the capital from your former 401(k) (from a previous employer) for real estate investments, it could untether you from your current financial plan, so be sure that step is right for you.
Such alternatives could allow you to diversify your investments and also hedge against the potential volatility of other investment options. You could benefit from having a more diversified portfolio rather than keeping all your (nest) eggs in one basket.
It’s important to remember that if you’re thinking of investing your 401(k) in real estate, you’ll need to roll it over into a self-directed IRA and there are rules you must follow. Make sure you do your own research, and discuss your plans with your financial advisor.
If we have your attention, but you’re hesitant about trusting someone you don’t know with your life savings, that’s good! You should always be careful about making such big decisions.
That’s where Canyon View Capital comes in.
Our principals have been investing in real estate for over 40 years now. While other investment managers may list similar options, the descriptions below summarize the real estate strategies CVC has developed.
CVC Strategies
Our private real estate investment strategies are specifically designed to make use of beneficial tax laws while investing in multi-family real estate properties that enjoy moderate investment income. CVC also offers an option for experienced, sophisticated investors, to accommodate your self-directed IRA, should you wish to use it for real estate.
While many private investment strategies might be invested in an array of financial vehicles, including equity funds, bond funds, money market funds, and hedge funds, CVC relies on real estate. Generally, CVC seeks real estate investments that increase the potential for:
- Steady cash flow
- Capital appreciation
- Equity growth
One of the biggest challenges in the world of investing is the difficulty of predicting market forces and determining what the economic future may bring. Investing in real estate can help buffer public market uncertainty5 by increasing diversification and spreading the risk of an investment portfolio.
Canyon View Capital Works With You
Now that you know some of the 401(k) real estate investment options that are available, you’ll want to partner with professionals that can help you get your foot in the door. At Canyon View Capital, we have over four decades of real estate investment and property management experience, with properties in markets throughout the US Midwest and Midsouth.
CVC professionals are focused on providing top-notch advice on real estate investing — but that’s not all. We also have a deep understanding of different aspects of real estate, accounting, and taxes. Our goal is to relieve you from the intricacies of real estate investing so that it’s as easy as it is effective. Then, on an ongoing basis, we do the heavy lifting of property management to remove one of the major burdens of real estate investing.
Our goal is to help you enjoy the highly sought-after benefits of real estate investing without the hands-on responsibilities. It’s sort of like having your cake and eating it too!
New to real estate investing, but want to learn more about 401k real estate investment options?
Citations
1Shunsuke Managi, Mohamed Yousfi, Younes Ben Zaied, et al., “Oil price, US stock market and the US business conditions in the era of COVID-19 pandemic outbreak,” Economic Analysis and Policy, Vol. 73, 2022, pgs. 129-139. ISSN 0313-5926. https://doi.org/10.1016/j.eap.2021.11.008.
2Mateo Tonello, Stephan Rabimov, “The 2010 Institutional Investment Report: Trends in Asset Allocation and Portfolio Composition,” for The Conference Board. https://ssm.com/abstract=1707512
3Monthly 12-month inflation rate in the United States from February 2020 to February 2023. Statista.com. Accessed April 13, 2023.
4US Bureau of Labor Statistics. “67 percent of private industry workers had access to retirement plans in 2020.” March 1, 2021, www.bls.gov.
5Gary Beasley, “Real Estate Offers A Powerful Hedge Against Market Volatility” for Forbes. Jan 2, 2020, Forbes.com. Accessed April 25, 2023.
6$1B figure based on aggregate value of all CVC-managed real estate investments valued as of March 31, 2023.
Gary Rauscher, President
When Gary joined CVC in 2007, he brought more than a decade of in-depth accounting and tax experience, first as a CPA, and later as the CFO for a venture capital fund. As President, Gary manages all property refinances, acquisitions, and dispositions. He works directly with banks, brokers, attorneys, and lenders to ensure a successful close for each CVC property. His knowledge of our funds’ complexity makes him a respected executive sounding board and an invaluable financial advisor.
Anyone who has managed or sold real estate properties is keenly aware of at least one of life’s few guarantees: taxes. Whether you make a record-breaking return or a modest profit, the Internal Revenue Service inevitably appears to collect the government’s cut.
Some savvy property owners, however, have discovered the benefits of using a 1031 exchange as a means of delaying capital gains taxes they would normally owe — potentially into perpetuity. While 1031 exchanges are almost always restricted to investment properties, some property owners still ask if there’s a way to extend this opportunity to primary residences.
While the IRS’s stance is an explicit “no,” as with most Internal Revenue Codes, Section 1031— the particular tax code that addresses these transactions — has a few exceptions that open up the possibility of using a 1031 exchange on a primary residence. Below, we will give you a foundational understanding of the process before explaining how you can use a 1031 exchange for your primary residence.
1031 Exchange Explained
Under normal circumstances, capital gains taxes are an unavoidable part of the property sales process. Once you have closed the sale, the IRS expects taxes amounting to 15% or 25%, based on factors like the total sale amount, your annual income, and a 3.8% surtax for higher-income individuals.
However, Internal Revenue Code Section 1031 allows real estate investors to replace one property with what the IRS describes as another “like-kind” property. This allows sellers to defer capital gains taxes that would otherwise have been due during income tax season.
The basic rules of a 1031 exchange are:
| Simplified 1031 Exchange Rules | |
| 1 | The old property and the new property must be “like-kind.” |
| 2 | The new property must be used for investment or business purposes. |
| 3 | The new property must have equal or greater value than the previous one, or some portion of the exchange may be taxable |
| 4 | Any cash or proceeds from the sale must be handled and held by an intermediary, not the seller. |
| 5 | The name deeded on the new property title must match that of the sold property. |
| 6 | The new property must be identified and communicated to an intermediary within 45 days of the closing date for the sale of the old property. |
| 7 | The new property purchase must be closed, and the purchase must be funded by the intermediary, within 180 days of closing the sale on the old property. |
| 8 | The 45-day and 180-day windows occur concurrently. In other words, if you identify a new property 25 days after selling your old property, you’ll have 155 days left to purchase that new property. |
What essentially occurs during a 1031 exchange is that you sell one property and use the sale proceeds to purchase a like-kind property, which in this case, is another investment property.
By doing so, you effectively push back the due date for your capital gains taxes until you sell the new property. What’s more, no law or ordinance prevents you from swapping out your new property again for another when you decide to sell, effectively eliminating your liability for capital gains taxes! Neat, huh?
Some things in life sound too good to be true, and it’s always a good idea to do your own research if you’re uncertain. Fortunately, this is not the case with a 1031 exchange because it allows you to use a legal exception in the Internal Revenue Code to your advantage.
Using a 1031 Exchange on a Primary Residence
So why does all of this matter if you’re selling a primary residence and not an investment property? Normally the IRS does not allow 1031 exchanges on primary residences. This is because 1031 exchanges are meant to be used on investment properties or properties held for business purposes and primary residences are used as your shelter.
However, as with many things in the Internal Revenue Code, there are exceptions to the rule and ways you can use a 1031 exchange for a primary residence.
Converting a Primary Residence Into an Investment Property
How often has someone mentioned they’ve decided to buy a new home and just rent out the old one to tenants? Perhaps you’ve even done this yourself as it’s a common path of entry to real estate investing for many Americans.
One way you can conduct a 1031 exchange on your primary residence is by converting it into an investment property.
There are a couple of stipulations, of course:
- The IRS does not explicitly state how long a property must be held for rental purposes to be used for a 1031 exchange. A general rule of thumb, upon which many CPAs would agree, is that you should rent the property out at fair market rates for at least two years.
- You cannot reside at your property in any capacity while it’s in use as a rental. It must be used specifically for investment purposes.
Section 121 Exclusion
Another option for saving taxes is to exclude part of the capital gain using what’s called a Section 121 exclusion. While not quite the same as a 1031 exchange, Section 121 exclusions can give you additional elbow room for capital gains taxes on primary residences.
Instead of being a method of tax deferral, it allows you to exclude gains on the sale of a primary residence of up to $250,000 for single filers and $500,000 for joint filers. To use Section 121, you need to have resided on the property for at least two of the previous five years, although it doesn’t have to be a continuous period.
There is one huge caveat with Section 121 exclusions: homeowners can only claim this exclusion once every two years.
Canyon View Capital Makes 1031 Exchanges Easy
Now that you know more about using a 1031 exchange on a primary residence, you’ll want to partner with experts. Though 1031 exchanges and similar strategies can yield impressive benefits, they can also be extremely complicated to initiate and execute successfully. That’s why even seasoned investors should consider seeking professional advice. The Canyon View Capital team has an extensive understanding of real estate, investment strategies, and tax laws to ensure your 1031 exchange goes through without a hitch.
The CVC team works diligently to help investors like you navigate the tumultuous waters of real estate investing. For over four decades, CVC principals have managed a portfolio of over $1 billion1 in multi-family real estate and shared our expertise with investors.
The professionals at CVC can help simplify the process by rolling your sale proceeds into one of our multifamily properties in America’s Heartland. At CVC, we work with you step-by-step to help you enjoy steady returns on risk-averse properties while also serving as your go-to resource for all things related to taxes and real estate.
Still hazy on the details of a 1031 Exchange for a primary residence?
Canyon View Capital can show you the way! We will walk you through every step of your 1031 exchange, and our in-house professionals will always answer your questions honestly, completely, and promptly. CVC will help you cut through the red tape, no matter how sticky it gets. Contact Canyon View Capital TODAY!
Verified accreditation status required.
Gary Rauscher, President
When Gary joined CVC in 2007, he brought more than a decade of in-depth accounting and tax experience, first as a CPA, and later as the CFO for a venture capital fund. As President, Gary manages all property refinances, acquisitions, and dispositions. He works directly with banks, brokers, attorneys, and lenders to ensure a successful close for each CVC property. His knowledge of our funds’ complexity makes him a respected executive sounding board and an invaluable financial advisor.
While investing can be a rewarding experience, venturing into new financial waters can bring on feelings of anxiety. Despite the learning curve, most investors still want some kind of reassurance that they’re making the best moves — especially when you have so many options.
Another concern of financial ventures is the fact that at some point, Uncle Sam will come for his share. Taxes are typically as unavoidable as, well, — death and taxes, when it comes to real estate investments.
If you’re a landlord or property manager, you’re probably already aware of this fact because all the net income your property generates counts as taxable income. This small — but vital — detail can add to an already lengthy list of nagging deadlines. On top of all the duties, responsibilities, and expenditures of managing real estate property, paying taxes on it may feel like an added insult when you finally have an opportunity to sell.
This is why the tax break from a 1031 exchange has become an increasingly attractive option for new investors and real estate managers. If you’re a California resident who wants to explore real estate opportunities in other states, you may be wondering if a 1031 exchange from California to another state is even possible. The short answer is that it is.
Below, we’ll answer that question in greater detail — and we’ll offer a baseline explanation of a 1031 exchange, including some guidelines and restrictions.
1031 Exchange in a Nutshell
If you’ve ever sold an investment property, you know you’re responsible for paying capital gains taxes on any profit you make from the sale. But did you know there’s a way to defer those taxes?
A 1031 exchange, named for Section 1031 of the Internal Revenue Code (IRC), refers to the practice of swapping one real estate property for another to delay (or “defer”) the required payment of capital gains taxes.
This tax break applies when you sell a property that’s used explicitly for investment purposes and purchase another, “like-kind” investment property of equal or greater value. This transaction essentially negates your need to pay taxes on capital gains for your transaction.
For example, if you purchased an investment property for $150,000 and sold it for $300,000 five years later, you may be on the hook for around $50,000+ in federal/state capital gains taxes — that’s nearly a third of the profits you made.
| Example of a 1031 Exchange | |
BUT INSTEAD,
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$3.5M |
$3M
You can see how skipping this last step of the property sales process might seem attractive to investors. And, when done correctly, this practice can be used in perpetuity. While 1031 exchanges are a great way to defer capital gains taxes, you should know about some of the guidelines and strict timelines that apply.
1031 Exchange Rules
One of the most important things to note concerning a 1031 exchange is that proceeds from the sale cannot be received by the seller. That means that when you sell your property, the funds must be handled by an accommodator (sometimes called an intermediary) or the 1031 exchange will be null.
Also, when engaging in a 1031 exchange, there is a rather tight window during which the process must be completed.
- 45-Day Rule: When the sale of your property is complete, you need to designate the replacement property and communicate it in writing to the accommodator within 45 days.
- 180 Day-Rule: Once you have decided on your property and notified the intermediary you intend to close on it, you must complete the transaction within 180 days of the sale of your previous property.
It is also crucial to understand that these two time periods run synchronously. That means if you notify an intermediary of your new property 30 days after your first sale, you now have 150 days to close on that property (180 minus 30).
How a 1031 Exchange from California to Another State Works
For those living in California, the prospect of selling high-priced West Coast real estate and purchasing something in an entirely different state may sound enticing. There are many reasons to consider this strategy.
For instance, the value of California homes is usually much higher than properties in a more central state like Arkansasor Missouri. That means if you exchange a California property, you could potentially get a lot more bang for your buck and end up with more units, or higher-end properties in more centralized (stable) real estate markets.
A common concern regarding 1031 exchanges is whether or not they can be done state-to-state. It’s understandable, given that each state has its own laws for retail and property sales.
Thankfully, there are no such laws that prevent exchanging property from California for property in another state. Under IRC Section 1031, real estate in the US is like-kind to real estate located in another state and you can exchange from one to another. As part of the federal tax code, it applies to all states. However, there are some nuances in play for California and some other states:
- California requires investors to file return information within the same year the out-of-state change occurs, as well as every proceeding year.
- Whenever an investor sells without an exchange, taxes are typically due to the state in which the final property is sold (apart from some specific exceptions).
If you want more detail on these points, make sure to consult with your own tax expert or financial advisor for clarification.
In essence, 1031 exchanges offer shrewd real estate investors to enhance their wealth-building capabilities by deferring capital gains taxes. However, 1031 exchanges can be just as complex as they are beneficial. They must be executed correctly — and on time — so you can enjoy their rewards. That’s why even seasoned investors should enlist the help of professionals who understand the deep financial and tax-specific intricacies of 1031 exchanges.
Canyon View Capital Helps You Upgrade Your Portfolio
At Canyon View Capital, our principals have spent the better part of the last four decades managing real estate that has amassed over $1 billion1 in value. Early company leaders have handed down their wisdom, and now our team is eager to share that expertise with you: our investors.
Now you know the basics: 1031 exchanges have great benefits, but only if you can complete the requirements within a narrow window of execution. CVC can help simplify the process and accommodate your needs accurately and swiftly. We’ve helped plenty of investors roll their sales into one of our multifamily properties located in America’s Heartland, which is just one kind of opportunity we offer.
This allows you to enjoy steady benefits from rental units that tend to be that tend to be higher-yielding, less volatile, and more cost-efficient than what you find in California. We are committed to guiding you through your 1031 exchange and working with you to make sure you have a thorough understanding of the process. We’ll even answer your additional questions about taxes or accounting. All of us at CVC are eager to share our expertise.
Can you do a 1031 exchange from California to another state? Absolutely! Give us a call and we’ll show you how.
Still hazy on the details of a 1031 Exchange from California to another state?
Canyon View Capital can show you the way! We will walk you through every step of your 1031 exchange, and our team members will always answer your questions honestly, completely, and promptly. CVC can help you cut through the red tape, no matter how sticky it gets. For a successful exchange, contact Canyon View Capital.
Verified accreditation status required.
Gary Rauscher, President
When Gary joined CVC in 2007, he brought more than a decade of in-depth accounting and tax experience, first as a CPA, and later as the CFO for a venture capital fund. As President, Gary manages all property refinances, acquisitions, and dispositions. He works directly with banks, brokers, attorneys, and lenders to ensure a successful close for each CVC property. His knowledge of our funds’ complexity makes him a respected executive sounding board and an invaluable financial advisor.
As a real estate investor, you know that selling a property is a big decision. Maybe you’re ready to move on from a long-held property or looking for a new opportunity in a different area. Whatever the case, a downside to selling an investment property is the capital gains taxes that come with it. But what if I told you that you don’t have to pay them?
That’s right – using a tax strategy called a 1031 exchange allows you to defer those taxes and reinvest in new properties. However, as a California investor, you may be wondering about any rules and regulations specific to California you need to follow.
In this article, we’ll give you the scoop on 1031 exchanges, 1031 exchange California rules, and explain why you’ll want an expert at your side to help ensure all the details for your 1031 exchange are in order. So, if you’re a real estate investor looking to defer capital gains taxes and reinvest in new properties, keep reading to learn how 1031 exchange rules can work for you in California.
| Discussion Topics |
What Is a 1031 Exchange?
If you’re a real estate investor looking to defer taxes when moving on to more promising opportunities, then listen up! A 1031 exchange, named for Section 1031 of the Internal Revenue Code (IRC), is a tax strategy that could help you do just that.
Here’s how it works: when you sell an investment property, instead of paying capital gains taxes on the sale, you can reinvest the proceeds into another “like-kind” property without paying taxes. To be considered “like-kind,” the property must be of equal or greater value and must be used for investment purposes.
This provides a path for deferring taxes until later—possibly in perpetuity—and offers a smart strategy so your money works for you to make increased returns a real possibility.
But wait, there’s more! The rules and regulations surrounding a 1031 exchange can be complex, and you must follow strict timelines. For example, you’ll need to identify a replacement property within 45 days of your initial sale and complete the exchange within 180 days. Also, these two time periods run simultaneously.
1031 exchanges also require that proceeds from the sale of the original property be held by an intermediary, not the seller, otherwise, the exchange may be voided.
To summarize, here are a few baseline rules for 1031 exchanges:
- 1031 exchanges allow investors to sell one property and exchange it for another “like-kind” property to defer capital gains taxes.
- “Like-kind” properties must be of equal or greater value and be used for investment purposes.
- The replacement property in a 1031 exchange must be identified within 45 days of the initial property sale.
- The entire 1031 exchange process must be completed within 180 days of the initial property sale.
- The 45-day rule and 180-day rule run synchronously.
- To qualify for a 1031 exchange, the seller may not hold any proceeds from the sale of the original property. These must be handled by an intermediary.
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Still interested? It’s important to note that, technically, a 1031 exchange is not a way to avoid paying taxes altogether. Eventually, if you sell the new property without executing another 1031 exchange, the capital gains taxes will still be due. However, with careful planning, a 1031 exchange can be a powerful tool real estate investors use to defer those taxes and can be performed in perpetuity.
Why Do a 1031 Exchange in California?
For investors and property managers in California, a 1031 exchange can be a lucrative proposition because, as you probably already know, California is one of the states with the highest capital gains taxes in the country, sometimes reaching 13.3%. That’s the kind of tax rate that can take a substantial bite out of your profits when selling investment property.
When using a 1031 exchange, California investors can defer paying both state and federal capital gains taxes on the sale of their investment property, which can be a serious amount of money. Using this particular tax code allows you to reinvest your full sale proceeds into a new property, which could open the door to a higher-value property.
1031 Exchange California Rules Investors Should Know
You may be wondering about any specific 1031 exchange California rules, as tax laws often vary by state. While California does recognize Section 1031 of the IRC and does not have any laws directly related to 1031 exchanges, there are a few state rules that apply to selling and buying property in the state or exchanging property in California for one in another state.
1031 Exchange in California: Rules and Benefits | ||
| Benefit | Description | California-Specific Rule |
Tax deferral
| Taxpayers selling investment property may defer capital gains taxes to reinvest the capital in a new property. | California imposes state tax on capital gains, depreciation recapture, and any boot received. |
Increased
| By reinvesting the sale proceeds in a new property, taxpayers could see an increase in cash flow from rental income. | The dielectric material and impedance share a logarithmic relationship. By reducing the thickness of the dielectric, impedance can be reduced. |
Diversification
| In an effort to spread risk, taxpayers can diversify their real estate holdings by exchanging one property for a different kind of investment property. | California has a “clawback” provision: if you exchange a California property for one in another state, when you sell the new property you may be subject to California state tax and the state of the final sale. |
Step-up in basis
| If a taxpayer holds a replacement property until death, the heirs receive a step-up in basis, which could potentially eliminate their capital gains tax liability. | California law does not have any specific rules related to estate planning for 1031 exchanges. |
Depreciation benefits
| Allows for continued depreciation benefits on the replacement property. | California does not conform to federal depreciation recapture rules. You must recapture any depreciation claimed on the property as income on your CA state tax return. |
Initiating 1031 exchanges in California is usually just as simple as it would be in any other state. However, you’ve probably noticed that California aggressively tracks replacement properties purchased in other states. That means that if you exchange your California property for one in Arkansas, for example, California will want to recoup the capital gains tax when you decide to sell your Arkansas property.
As you can see, the benefits of a 1031 exchange are clear: you defer capital gains taxes and use them to increase your income potential with a new investment. But the devil is in the details, and a misstep in the process can cost you big bucks. That’s why it’s crucial to work with an experienced partner that can help you navigate the rules and regulations surrounding 1031 exchanges, including California-specific requirements.
Let CVC Help Guide Your 1031 Exchange
Now that you have a better understanding of 1031 exchange California rules, you’ll need a partner who truly understands the nuances of the process. At Canyon View Capital, we know 1031 exchanges like the backs of our hands. For the better part of four decades, our professional team members have owned and managed multifamily real estate that is now valued at over $1 billion1. We want to share our wealth of experience to help investors like you realize the benefits of a 1031 exchange.
Think of it like hiring a tour guide to show you the hidden gems in a new place. They know the language, the customs, and the best sites to see. In the same way, an experienced investment manager speaks the language specific to 1031 exchanges and can guide you through the ins and outs so you avoid costly mistakes.
At CVC, we are committed not only to assisting your 1031 exchange but also to helping you understand the process by answering any additional questions. We can’t wait to share our experience with you.
Gary Rauscher, President
When Gary joined CVC in 2007, he brought more than a decade of in-depth accounting and tax experience, first as a CPA, and later as the CFO for a venture capital fund. As President, Gary manages all property refinances, acquisitions, and dispositions. He works directly with banks, brokers, attorneys, and lenders to ensure a successful close for each CVC property. His knowledge of our funds’ complexity makes him a respected executive sounding board and an invaluable financial advisor.
Most Americans state that building wealth for the future is a major career goal. This ethos of “working to live” instead of “living to work” prompts many folks to start setting capital aside for a comfortable retirement. While not many want to work forever, most people do look forward to living well, especially in their golden years. That’s why this blog discusses using a 401(k) for investment property.
It should come as no surprise that investment properties offer enormous potential value to investors because they add another avenue for stable returns to their portfolios. What may surprise you is that eligible investors may be able to invest in real property by using funds currently held in a 401(k).
If you’re looking for ways to diversify your portfolio, I’ve got the details you need to know to use money in a 401(k) to purchase real estate investments.
401(k)s Explained
For decades, 401(k)s have replaced traditional pensions as the most common financial vehicle for retirement savings. Recent factors like market volatility, inflation, withdrawal limits, and accompanying taxes, however, have started raising questions about whether investments held in a 401(k) alone can sustain a suitable quality of retired life.
Definition
Typically employer-sponsored, 401(k)s are tax-advantaged retirement plans through which companies often match a certain percentage of employee contributions. Employees can choose a flat dollar amount or percentage of their gross salary to contribute from every paycheck. All contributions are tax-deductible, but withdrawals are subject to taxes.
This readily accessible option gives even the least financially savvy individual an opportunity to invest in funds with limited hands-on involvement. With a standard 401(k), you can just set it and forget it!
Limitations
You might notice some drawbacks in the details, however, that could make a 401(k) less enticing as a singular retirement option.
Chief among them is the limit of options you have over how to invest your money after it’s contributed. The capital in your 401(k) is essentially locked in place — usually 401(k) participants must select from a pre-set portfolio of stocks, bonds, and mutual funds — until you make a withdrawal. That means even if you have hundreds of thousands of dollars invested, you have little choice about which individual funds your money goes into.
In addition, it could take years before you are vested in your employer’s contributions. Though the length of time varies with individual plans, most employees are fully vested within either 3 or 6 years, maximum. You may risk forfeiting any employer contributions if you leave a company before you’re vested. If this occurs, it could significantly impact your account balances and funds invested to date.
Moreover, as market forces continue to shift in extremes and inflation reaches decades-high levels, your current 401(k) investments may simply not be enough to provide the life you’ve imagined when it’s time to retire and reap the rewards of your hard work.
In short, while 401(k)s do allow you to contribute easily to a retirement savings account without worrying about closely managing the funds, they do have some shortcomings, which can include:
- Limited options for investment once the funds have been contributed.
- Possible delay of several years before you become vested.
- IRS limits on yearly contributions.
- Tax penalties upon early withdrawal.
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There are ways to transfer your money out of its current 401(k) vehicle to explore more options to invest your money. It all starts with what is known as a 401(k) rollover.
Rolling Over a 401(k)
A 401(k) rollover involves a direct transfer of the funds from your current 401(k) plan to an individual retirement account (IRA). There are some intricacies here that we recommend you speak to your investment advisor about. If a rollover is right for you, funds placed in a self-directed IRA may be eligible for various alternative investments, including real estate.
The table below lists some of the key differences between a 401(k) and a self-directed IRA.
401(k) vs. Self-Directed IRA | ||
401(k) |
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Self-Directed IRA |
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The key factor when comparing 401(k)s with self-directed IRAs regarding investments is that you have a lot more options with a self-directed IRA because you generally have access and can control what you do with the funds.
This article and the grid above contain only summary information about 401(k)s and self-directed IRAs. Be sure to talk to your financial advisor and your tax professional to ensure you understand these investment vehicles, rules, and the limitations that may apply.
How to Use 401(k) Assets for an Investment Property
Earlier in this article, we mentioned real estate investing options, but we had to save discussing the nuts and bolts until after the 401(k)-vs.-self-directed-IRA explanation. That’s because while you generally will not have the ability to invest 401(k) funds for direct real estate investing, you can gain this ability by using a self-directed IRA.
So, you’ve set aside funds from your 401(k) and rolled them into a self-directed IRA. Now your money isn’t restricted to traditional investments like bonds or stocks and—subject to certain limitations—you can fund a variety of alternative investments, like real estate.
But what are the mechanics of this process, you ask? While the process is a bit involved, we can distill it into a handful of main steps, listed below.
- Open your self-directed IRA.
- Roll your funds from your 401(k) into the IRA.
- Locate your potential investment property.
- Make an Earnest Money Deposit.
- Prepare for the escrow process with the title company.
- Close the purchase of the property.
- Begin managing the property.
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Now that you have the basic dance steps, there are a few guidelines and caveats you should know about before beginning this process:
- The property must be used solely as an investment property. It cannot be used as a second home, an office for your business, or a home for family members.
- Any revenue generated from the property, like rental income, must be declared as taxable income.
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Armed with all this knowledge, your next step is to use it to start diversifying your investment portfolio. It’s worth noting that taking on an investment property is a huge responsibility, especially for those who are new to the whole real estate investment strategy. As the property manager, you’ll be responsible not only for ensuring the tenants are happy and that the property satisfies legal requirements, but you’ll also manage the taxes and fees that come with your new source of income.
If it sounds like you’re trading away the convenience of “setting and forgetting” your automatic 401(k) contributions, that’s not necessarily the case.
For example, instead of managing a property directly, you could put your money into a real estate investment that’s managed by another party. This allows you to enjoy the benefits of real estate investing without the extra responsibilities of property management. You could give Canyon View Capital a ring to find out what kinds of options we have that will accommodate your self-directed IRA. All it takes is a phone call.
Canyon View Capital Makes Real Estate Investing Simpler
Here at Canyon View Capital, real estate investing is our bread and butter. CVC principals have over 40 years of experience, and now our team manages over $1 billion (aggregated) in real estate properties located across middle America. Our offerings have similarities to other real estate investments but without the burden of property management.
Whether you’re new to real estate investing or an old pro, the CVC team is ready to make real estate investing as easy for you as possible. We can also leverage a depth of pooled knowledge from principals with a broad scope of professional experience.
Eric Fisher, Chief of Staff
Eric joined Canyon View Capital in August 2021 with 15 years of hotel management experience grounded evenly between Property & Corporate Operations, and Business Development & Acquisitions. After $500M+ in hotel acquisitions, Eric uses his nuanced understanding of the acquisitions and transitions processes to support CVC real estate investments. His professional versatility makes Eric an invaluable resource for the President and Executive Team in all business functions, including Investments, Operations, and Strategy.
A common concern for many Americans progressing through their careers is how to prepare for the transition from actively working to “retired” — emotionally and financially. If you’re one of the millions of people with an employer-sponsored retirement plan, you’re probably wondering if you’ve saved enough — and may be curious about the returns you’re getting on those savings.
A recent Investment Company Institute report on the $37 trillion US retirement market indicates 401(k)s make up just over $7 trillion, or roughly one-fifth of the total assets. The rest includes individual retirement accounts (IRAs), pensions, and annuities for private and public sectors.
Aside from increasingly rare pension funds, 401(k)s considered a “simpler” approach to investing because contributions come out of your paycheck automatically. Such regular deposits in investment options can offer many people a sense of security — especially when compared to other savings vehicles, like certificates of deposit (CDs), bonds, or keeping it under your mattress. While recent market downturns, higher fees, and periods of recession could deflate the perceived stability of 401(k)s, a bigger issue is how much flexibility such savings allow.
But there is another way—if you have money in a 401(k), that doesn’t necessarily mean it’s completely tied up! If you’re reading this post, you’ve probably got a solid start on your retirement savings, and now you want it to work for you. If you’re looking for ways to diversify your investment portfolio with alternative options like real estate, this discussion on 401(k) real estate investment rules can help you get started. Use the links below to jump ahead to different sections.
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Why Investing for the Future Matters
Almost everybody wants to enjoy a relaxing, stable retirement — barring a few special exceptions. When it’s time to move on to the chapter beyond your career, how much you manage to save until that point can strongly influence the quality of your retirement.
Your dreams don’t end just because you retire. When you’ve successfully invested in your future, you want the ability to realize those aspirations, along with new goals developed along the way. More importantly, you want to maintain financial independence long after stepping away from an active career. For a lot of people, such independence comes from a retirement fund, the most commonbeing 401(k)s and IRAs.
401(k)s Explained
401(k)s are defined contribution plans typically used by US employers as retirement funds. These funds offer tax advantages for employees, who can designate a pre-tax amount of each paycheck for deposit. In some cases, employers can opt to match employee contributions.
As an example, if an employee elects to deposit 5% of every paycheck into a 401(k), their employer can choose to match that dollar amount. If an employee’s contribution amounts to $500 per paycheck and their employer opts to match it, another $500 is deposited in the employee’s retirement account.
Depending on the plan, it can take some time before you are fully vested in your employer’s contributions, meaning that you own them outright. If you leave a job before you’re vested, you could forfeit some or all matching contributions to your 401(k).
Deposited funds are typically invested in a number of different savings vehicles that, together, make up the entire 401(k). With some 401(k) funds, you can choose how to allocate your savings from a list of stocks, bonds, mutual funds, and CDs.
Because traditional pre-tax retirement contributions are deducted from an employee’s gross income, the deposited amount reduces taxable income. And, as no taxes are due until the money is withdrawn, these savings can grow tax-deferred.
ROTH 401(k)s
The ROTH 401(k) is another type of retirement fund, but with one key difference from traditional models: this species of savings uses post-tax deductions. The deposits are deducted from net income (unlike traditional 401(k)s), but there are no taxes due for withdrawals after age 59 ½.
Regardless of the type, all 401(k)s have limits on the maximum amount of annual contributions (for 2023, the max amount is $22,500).
401(k) Real Estate Investment Rules You Should Know
Now that you have a better understanding of 401(k)s, you’ll likely want more information about managing the funds you’ve contributed. There are some individual plan guidelines that determine what you can and can’t do with the money once it leaves your paycheck and is deposited in retirement savings. There are also a few 401(k) real estate investment rules that must be followed when moving that money into real estate.
Often, when you start contributing to a 401(k), you’ll be allowed to choose how the money is invested or if it will just sit in a money market account. In general, 401(k)s tend to have rigid guidelines on how funds are invested. Some of those rules specify:
- You cannot invest in individual companies.
- You may select one or more mutual funds or exchange-traded funds (ETFs) that invest in sectors or in a variety of companies.
- You cannot pull money out of a 401(k) before age 59 ½ for traditional 401(k)s without meeting one of the IRS exceptions — or from ROTH 401(k)s before age 59 ½ unless you become disabled — without suffering a penalty.
- When you leave one job for another, there is a 60-day window wherein the IRS allows you to move your money from a 401(k) into an IRA.
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The last rule is crucial to giving you greater investing flexibility with your 401(k) funds. That’s because unless you want to pay a steep 10% fee on funds you withdraw (unless you meet an exception), it’s the only leeway the IRS gives you.
IRAs are another kind of pre-tax retirement savings account but they differ from 401(k)s in that they have no employer sponsors. As indicated by the name, “individual account,” investors have more agency in deciding where the money goes.
If, for instance, you wanted to take money out of your IRA and invest it in a wider universe of investment options, including real estate, you can do so! IRAs do come with a few caveats, compared to 401(k)s. They have lower contribution limits and are not eligible for matching employer contributions.
Despite some limitations, IRAs are a valuable tool to have in your retirement planning toolkit because you can invest money from an IRA directly into real estate. Conversely, a crucial 401(k) real estate investment rule to remember is that you cannot invest money from a 401(k) directly into real estate.
Instead, you must roll your 401(k) funds over into a self-directed IRA. Using the 60-day window allotted by the IRS to move money from a 401(k) to an IRA is called a rollover. This strategy can be used to free up money that may otherwise be “stuck” in the more restricted investment opportunities that 401(k)s offer.
There is also a standard process that you must follow.
By taking advantage of a self-directed IRA, you can explore a wider range of investment options like real estate that may not be available through your 401(k). This can be especially useful if you’re concerned that external factors may impact your 401(k) and want to try and further diversify your portfolio to better protect your retirement savings.
If the thought of mixing up your investments alternatives like real estate options piques your interest, you might be wondering about the next steps you can take. That’s where Canyon View Capital comes in. A phone call is all it takes for us to provide you with expert assistance.
Canyon View Capital Offers Options for Real Estate Investment
Congratulations, you’ve taken the first step toward a clearer financial future! Now you’ll want to partner with experts that are not only focused on bringing investors like you financial strategies that could be a good fit for your investment strategy.
At CVC, we eat, sleep, and breathe real estate investing. With decades of experience under our belt and investments throughout the Midwest and Midsouth, we’re here to offer you funds that make your money work for you without worrying about getting caught up in the confusing details.
If you’re new to real-estate investing, but keen to get started?
For 40+ years, CVC professionals have managed, owned, and operated various types of real estate. Now, we co-own and manage a portfolio of multifamily properties valued at over $1 billion1. Our buy-and-hold strategy rooted in America’s heartland is designed to give investors consistent returns. Contact CVC today—it just takes a phone call!
Eric Fisher, Chief of Staff
Eric joined Canyon View Capital in August 2021 with 15 years of hotel management experience grounded evenly between Property & Corporate Operations, and Business Development & Acquisitions. After $500M+ in hotel acquisitions, Eric uses his nuanced understanding of the acquisitions and transitions processes to support CVC real estate investments. His professional versatility makes Eric an invaluable resource for the President and Executive Team in all business functions, including Investments, Operations, and Strategy.
