<p>Most experts agree that we will continue to see a slowdown in the housing market throughout 2023, with home sales decreasing anywhere between 7-15% due to increasing interest rates. As the housing market continues to cool, the demand for real estate professionals will decrease, making an already competitive field even more competitive. 1031 Exchanges provide a great way for real estate professionals to differentiate themselves from their competitors, and not only retain, but grow their businesses.</p>

<h2>Current State of the Real Estate Housing Market</h2>

<p>The relationship between interest rates, the housing market, and the job market for real estate professionals is complex and multifaceted. In general, changes in interest rates and the housing market can have a significant impact on the demand for real estate services and the job prospects of real estate professionals.</p>

<p>The correlation between interest rates, the housing market, and the demand for real estate professionals includes:</p>

<ul>
<li>Interest rates: Interest rates have a direct impact on the affordability of homes. When interest rates are low, it becomes more affordable for buyers to purchase homes, which can lead to an increase in demand for real estate services. Conversely, when interest rates are high, like in the current market, it becomes more expensive for buyers to borrow money, which can decrease demand for real estate services. In addition, high interest rates are not attractive for homeowners to refinance their mortgages, which can decrease the demand for mortgage brokers and loan officers.<br />
&nbsp;</li>
<li>Housing market: The housing market can also affect the job market for real estate professionals. When the housing market is strong, with high demand and rising prices, real estate agents, brokers, and appraisers may see an increase in business. Conversely, during a housing market downturn, with low demand and falling prices, real estate professionals may experience a decrease in business.</li>
</ul>

<p>Overall, the job market for real estate professionals can be affected by a variety of factors, including interest rates, the housing market, and broader economic trends. Real estate professionals who can adapt to these changing conditions, provide unique value to their clients, and expand their service offerings will continue to thrive in any market environment.</p>

<h2>Overview of Real Estate Professional Saturation</h2>

<p>Here are some general trends and statistics that may provide insight into the saturation and competitiveness of the real estate industry:</p>

<ol>
<li>High number of real estate agents: According to the National Association of Realtors(r) (NAR), there are over 1.4 million real estate agents in the United States alone. This means that competition among agents can be fierce, especially in more populated areas.<br />
&nbsp;</li>
<li>Concentration of top agents: While there are many agents, a smaller number of top-performing agents tend to dominate the market. According to a 2017 report by Real Trends, the top 1% of real estate agents in the United States account for approximately 30% of all transactions.<br />
&nbsp;</li>
<li>Brokerage consolidation: In recent years, there has been a trend toward consolidation in the brokerage industry, with larger firms acquiring smaller ones. This can make it more difficult for smaller, independent brokers to compete.<br />
&nbsp;</li>
<li>Changing industry landscape: The rise of technology has disrupted the traditional real estate industry, with new players – such as Zillow, Open Doors, and others - entering the market and offering alternative models for buying and selling homes. This has increased competition and forced traditional agents and brokers to adapt to stay competitive.</li>
</ol>

<p>Overall, the real estate industry is highly competitive, with a large number of agents vying for a limited number of transactions, even more so with the cooling of the housing market since mid-2022. However, agents are still able to succeed by differentiating themselves through excellent service, marketing, expertise, unique knowledge, and extensive referral networks with partners including titles companies, 1031 Exchange Qualified Intermediaries, real estate attorneys, and related professionals.</p>

<h2>How Real Estate Professional Can Use 1031 Exchanges to Excel Business</h2>

<p>A real estate broker can use 1031 like-kind exchanges to grow their business by becoming knowledgeable and proficient in the process and then offering this service to their clients.</p>

<p>Here are a few ways a real estate broker can use 1031 like-kind exchanges to grow their business:</p>

<ol>
<li>Recommend a 1031 exchange service: By recommending a 1031 exchange service to clients, a real estate broker can provide an additional value-added service that can help them retain clients and attract new ones.<br />
&nbsp;</li>
<li>Build a relationship with a Qualified Intermediary (QI): A real estate broker can build a relationship with a QI, who is a professional authorized to handle the funds and paperwork for a 1031 exchange, to assist clients in the process.<br />
&nbsp;</li>
<li>Market the service: A real estate broker can market their 1031 exchange knowledge and network to clients and other professionals in the industry, such as accountants, attorneys, and other real estate professionals, to attract new business.<br />
&nbsp;</li>
<li>Educate clients: A real estate broker can educate their clients about the benefits of 1031 like-kind exchanges, such as tax savings, and help them understand the process, including the different identification rules and methodologies.</li>
</ol>

<p>By leveraging 1031 Exchanges, a real estate broker can differentiate themselves from other brokers, increase their revenue and client retention, and build a reputation as an expert in 1031 Exchanges which is a niche market for real estate professionals.</p>

<p>Depreciation recapture is a tax provision that requires taxpayers to pay taxes on the depreciation taken on a depreciable asset during the time the taxpayer owned the asset. The sale of the asset generates the tax liability. If you sold business or investment property in 2022 and did not utilize a 1031 exchange, you are likely faced with reporting your depreciation recapture tax owed on your 2022 Tax Return.</p>

<h2>How to Report Depreciation Recapture Tax</h2>

<p>To report depreciation recapture tax on your annual tax return, you will need to follow these steps:</p>

<ul>
<li>Calculate the amount of depreciation recapture tax owed on real estate: To do this, you will need to determine the amount of depreciation claimed on the asset during the time that you owned it. The total of all depreciation taken is the amount of gain that is subject to depreciation recapture tax. The federal tax rate for depreciation recapture is 25%. Simple the calculation process by utilizing&nbsp;our <a href="/depreciation-calculator" title="Depreciation calculator to calculate depreciated">Depreciation Calculator.</a></li>
</ul>

<ul>
<li>Complete Form 4797: This form is used to report the sale of business property and the amount of depreciation recapture tax owed. You will need to provide information about the property being sold, including the purchase date, purchase price, and the amount of depreciation claimed. You will also need to calculate the amount of depreciation recapture tax owed and report it on the form.</li>
</ul>

<ul>
<li>Transfer the information to your tax return: Once you have completed Form 4797, you will need to transfer the information to your tax return. The amount of depreciation recapture tax owed will be included on your Schedule D (Capital Gains and Losses) and will be subject to the applicable tax rate.</li>
</ul>

<p>It is important to note that the rules and procedures for reporting depreciation recapture tax may vary depending on the specific circumstances of the sale. It is recommended that you consult with a tax advisor for guidance on how to properly report depreciation recapture tax on your tax return.</p>

<h2>Real Property &amp; Beyond: Popular Examples of Assets Subject to Depreciation Recapture Tax</h2>

<p>Depreciation recapture tax applies to the sale of real estate as well as other certain types of depreciable assets. Some popular examples of assets subject to depreciation recapture tax include:</p>

<ol>
<li>Real estate: Buildings, land improvements, and other types of real estate that have been used for business purposes may be subject to depreciation recapture tax.<br />
&nbsp;</li>
<li>Vehicles: Commercial vehicles, such as trucks and buses, that have been used for business purposes may be subject to depreciation recapture tax.<br />
&nbsp;</li>
<li>Equipment: Machinery, tools, and other types of equipment that have been used for business purposes may be subject to depreciation recapture tax.<br />
&nbsp;</li>
<li>Intangible assets: Certain types of intangible assets, such as patents, copyrights, and trademarks, may be subject to depreciation recapture tax.<br />
&nbsp;</li>
<li>Rental property: Rental properties that have been depreciated over time may be subject to depreciation recapture tax when sold.<br />
&nbsp;</li>
<li>Partnership interests: Partnerships that have depreciated assets may pass on depreciation recapture tax liability to their partners when those assets are sold.</li>
</ol>

<h2>Defer Depreciation Recapture Tax</h2>

<p>If you are reporting Depreciation Recapture Tax on your upcoming annual tax return, it is too late for a 1031 exchange, but for future knowledge a 1031 Exchange allows for the deferral of Depreciation Recapture Tax on the sale of qualifying real estate.</p>

<p>Learn more about your&nbsp;<a href="/blog/what-are-1031-exchange-depreciation-options" title="Depreciation Options in a 1031 Exchange">depreciation options in a 1031 Exchange.</a></p>

<p>Taxpayers often ask whether they can sell their vacation/second homes as part of a 1031 exchange. The short answer is that if the property was used exclusively as a vacation or second home, it cannot be sold as part of a 1031 exchange. There are, however, limited circumstances under which a vacation/second home can be included in a 1031 exchange.</p>

<h2>Snapshot of IRC § 1031</h2>

<p>First, a quick review of the rules for a valid 1031 exchange. Internal Revenue Code Section 1031 says that when real property that was held for productive use in a trade or business or for investment is exchanged for other real property that will be held for productive use in a trade or business or for investment, the taxpayer does not recognize the capital gains on the sale of the original property. The key words here are “productive use in a trade or business or for investment.” Your vacation home or second home is neither held for productive use in a trade or business nor for investment.</p>

<p>Some might argue that acquiring a vacation/second home is an investment, as the property is expected to appreciate over time. However, a variety of court cases have held that hoping for appreciation on a property that was used exclusively by the taxpayer does not meet the definition of an investment property. Some commentators suggest that an easy way to determine if a property was held for productive use in a trade or business or for investment is to look to see if the property was reflected on Schedule E of the taxpayer’s federal income tax return. Schedule E is used to reflect income from rental real estate, among other things. The argument is that if the property was not reflected on Schedule E, then it is probably not an investment property, and a 1031 exchange involving that property would likely fail on audit.</p>

<h2>IRS Guidance on Vacation/Second Homes</h2>

<p>The IRS has given us additional guidance regarding vacation/second homes in the form of Revenue Procedure 2008-16. The Service specifically noted that some taxpayers hold property for rental purposes and also make periodic personal use of those properties. The Revenue Procedure specifically provides that the property (a) must have been owned by the taxpayer for at least 24 months prior to the 1031 exchange, (b) during each 12 month period prior to the sale, the property must have been rented for a minimum of 14 days, and (c) the taxpayer’s use of the property must not exceed 14 days, or 10% of the time that it was rented, whichever is greater.</p>

<p>Let’s look at a few scenarios and whether they would qualify for a 1031 Exchange:</p>

<ul>
<li>A taxpayer has used the properly exclusively as a vacation/second home - <u>it will not qualify under the Revenue Procedure.</u></li>
<li>A taxpayer rents the property for 14 days but makes personal use of the property for more than 14 days - <u>it will not qualify for 1031 exchange treatment.</u></li>
<li>A taxpayer rents the property for all of May through August (123 days) and makes personal use of the property for more than 14 days - <u>it will still not qualify for 1031 exchange treatment.</u></li>
<li>A taxpayer rents the property for all of January through June (180 days) and makes personal use of the property for 17 days - <u>it will qualify for a 1031 exchange, because the taxpayer used the property less than 10% of the time it was rented.</u></li>
</ul>

<p>Additionally, it would be prudent that any rental of the property be at fair market value, and that the income from the rent be reflected on the taxpayer’s tax return (Schedule E).</p>

<p>The bottom line is that second homes, or vacation homes, are not considered investment use property solely based upon the hope the property will appreciate and in order for a valid 1031 Exchange certain requirements must be met. Any taxpayers contemplating a 1031 exchange with a vacation/second home should consult with their tax or legal advisors before contacting the 1031 exchange company.</p>

<p>1031 Exchanges allow for the deferral of capital gains, depreciation recapture, and net investment income tax in qualifying real estate transactions. The deferred taxes come due at the time the Exchanger sells their property without a 1031 Exchange; however, should the Exchanger pass away the tax would be deferred indefinitely. Learn more in this short video.</p>

<p>&nbsp;</p>

<p class="text-align-center"><iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/9obLoKxS2Bc?controls=0&quot; title="YouTube video player" width="560"></iframe></p>

<p>Denver, CO, February 14, 2023 –Accruit Holdings, grew their team and expanded into three new states, Arizona, Michigan and Texas, with the addition of eight new team members in early 2023. The Business Development team welcomed Chassidy Goolsby, Aaron Shields, Dylan Johnson, Ronnie Sterling, and Dave Tornell. Jason Messmore and Brynn Hamilton joined the Service Development team. And Noah Doran will lead the Client Service team in a the newly created role of Client Service Manager.</p>

<p>Accruit's Business Development team has undergone extensive growth with the addition of these five team members. With Dylan and Ronnie's new, local presence in Michigan and Texas, respectively, Accruit will be able to provide in-market service and 1031 exchange education opportunities for exchangers and their advisors. Additional team members Aaron and Chassidy in Colorado and Dave in Arizona will focus on expanding the client base for offerings made possible by Accruit's patented software Exchange Manager ProSM. "We have more than doubled the number of sales roles in our organization to engage the 1031 exchange market with a comprehensive solution for all participants – Exchangers, Advisors and Qualified Intermediaries. We filled these new roles with Real Estate industry experts to deliver outstanding service to our industry partners and individual investors alike. We are poised for a record-breaking year built on a foundation of 1031 expertise and operational excellence.," stated Elliot Rutter, Director, Sales.</p>

<p>Since January 2022, Accruit's Service Development team has doubled in size. Jason Messmore, Service Development Business Analyst, will serve in the key role of liaison between business stakeholders and the development team, collecting and writing requirements and performing critical user acceptance testing, while also serving as scrum master. Brynn Hamilton, joins Accruit as a Junior Software Developer. Her addition will provide the department much needed depth to Accruit's Development team, increasing their ability to release more functionality for Exchange Manager ProSM users, while also providing support in the Eastern Time Zone.</p>

<p>"We are thrilled to have both Brynn and Jason on board and look forward to them quickly making key contributions as we continue to improve and enhance Exchange Manager ProSM, the only 1031 exchange workflow technology. Their additions give us much needed depth as we work to seamlessly scale our infrastructure to support our 1031 exchange software offerings," said Mark Mayfield, Vice President, Service Development and Delivery.</p>

<p>Noah Doran joins the Client Service Department in the newly created position, Senior Manager, Client Service. Noah will be instrumental in continuing to organize and refine the structure and processes of our quickly growing Client Services team. "He will focus on maintaining our world class Customer Service scores, while ensuring that we can efficiently handle the exchanges being brought in by our expanded Business Development team," said Mark.</p>

<p>"Accruit is excited to continue investing in the right people nationwide that support our long-term vision of revolutionizing the 1031 industry through world-class service and innovative technologies," stated President and CEO Brent Abrahm.</p>

<p>&nbsp;</p>

<p><strong>Accruit Holdings</strong></p>

<p>Accruit Holdings boasts over 20 years in the 1031 exchange industry. Through Accruit, their leading independent, national Qualified Intermediary, they provide 1031 exchange services across all 50 states and specialize in all types of exchanges from forward, reverse, built-to-suit/improvement to specialty "non-safe harbor" reverse exchanges. Accruit Technologies, a subsidiary focused on revolutionizing the industry through their patented 1031 exchange workflow software, offers both SaaS and back-office solutions to the real estate marketplace.</p>

<p>The Securities and Exchange Commission (SEC) was created after the 1929 financial crisis brought chaos to US investors. The commission’s primary goal is to protect unsophisticated investors from participating in investment opportunities that they might not understand or from taking on too much risk without adequate information. Accordingly, it created a category of investor referred to as accredited, which means the individual (or entity) is eligible to invest in a broader range of investment options than others. In order to be considered accredited, an investor must meet at least one of the following qualifications:</p>

<ol>
<li>Have an annual income of over $200,000 ($300,000 with a partner) for at least two previous years and an expectation of the same for the current year.</li>
<li>Have a personal or joint net worth of over $1 million, excluding the value of the primary residence. For entities, the minimum net worth is $5 million.</li>
<li>Be an investment professional holding an appropriate license such as Series 7, Series 65, or Series 62.</li>
</ol>

<p>Investors who qualify by these criteria can be accredited for most restricted offerings. However, it’s important to note that the company or entity offering the investment decides which investors qualify. While these are among the common means of being accredited, the <a href="https://www.sec.gov/education/capitalraising/building-blocks/accredited…; title="SEC website">SEC</a> offers a comprehensive list.</p>

<p>In addition, non-accredited investors may be able to participate in offerings for which they would not otherwise be eligible if they are affiliated with the company selling the relevant security. Banks and other institutions can also participate in restricted investment options.</p>

<h2>How does the SEC protect non-accredited investors?<!--2--></h2>

<p><a href="https://www.realized1031.com/glossary/non-accredited-investor&quot; title="Realized Non Accredited Investor">Non-accredited investors</a> are restricted from investing in specific offerings that may include hedge funds and private equities. An investment restricted to accredited investors can bypass registration with the SEC, allowing it to forgo presenting some disclosures to potential investors. These investments are often called private placements or Reg D offerings. The issuing company is only obligated to provide basic company information, in contrast to the detailed information required for securities registered with the SEC.</p>

<p>The working theory is that investors with fewer assets, lower income, or different professional experience may be misled by potential opportunities that don't have to comply with disclosure and information requirements and shouldn’t be allowed to risk significant amounts of capital on risky opportunities.</p>

<h2>Why do Delaware Statutory Trust (DST) investments require accreditation?</h2>

<p><a href="https://www.realized1031.com/glossary/delaware-statutory-trust-dst&quot; title="Realized DST Explanation">DSTs</a> can be attractive investments, offering the opportunity to purchase a fractional interest in a wide range of real estate assets. Sponsors create DSTs by pooling the assets of participating beneficiaries (investors in DSTs are referred to as beneficiaries) to invest in direct real estate ownership. DSTs may focus on any commercial real estate sector, including multifamily housing, office property, medical, industrial, or retail.</p>

<p>While the minimum investment for a DST varies, it typically will exceed $100,000. This threshold is one reason why participation requires accreditation. DSTs are highly speculative and also have significant holding periods—often as much as ten years or more—making them highly illiquid. Investors who need or want to exit before the scheduled termination may have difficulty divesting their shares. The DST sponsor will need to ascertain your <a href="https://www.realized1031.com/blog/does-a-delaware-statutory-trust-requi…; title="Realized DST Accreditation Requirement">accreditation</a> before allowing you to invest.</p>

<h2>Do I need accreditation to participate in crowdfunding?</h2>

<p>Some crowdfunding opportunities are accessible to non-accredited investors. For example, the 2017 Tax Cuts and Jobs Act opened up some eligibility for start-up companies to expand the potential investor pool for equity crowdfunding. Each specific investment offering will specify whether the participants need accreditation or not.</p>

<p>&nbsp;</p>

<p><strong>Authored by Realized®.</strong></p>

<p>Realized helps you exchange 1031-eligible investment properties for portfolios of commercial real estate that are customized to your shifting income needs, risk appetite, and investment goals across generations. By creating portfolios of fractional interests in Delaware Statutory Trusts (DSTs), Realized makes it easy to diversify investments across real estate sectors, geographies, and Sponsors.</p>

<p>Contact <a href="https://www.realized1031.com/&quot; title="Realized Website">Realized</a> to learn more about their due diligence and portfolio construction methodologies.</p>

<p>&nbsp;</p>

<p><span style="font-size:11pt"><span style="line-height:115%"><span style="font-family:Arial,sans-serif"><span lang="EN" style="font-size:9.0pt"><span style="line-height:115%">This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.<br />
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.<br />
All real estate investments have the potential to lose value during the life of the investment. All financed real estate investments have the potential for foreclosure.<br />
All investments have an inherent level of risk. The value of your investment will fluctuate with the value of the underlying investments. You could receive back less than you initially invested. No public market currently exists, and one may never exist. DST programs are speculative and suitable only for Accredited Investors who do not anticipate a need for liquidity or can afford to lose their entire investment.<br />
There is no guarantee that the investment objectives of any program will be achieved. And there is no guarantee that you will receive any income.</span></span></span></span></span></p>