Overview of Colorado and Breckenridge Area Real Estate Law

Breckenridge and Summit County area is a great place for buying and selling real estate because Colorado laws make the process fairly straight forward. The Colorado Real Estate Commission regulates the conduct of all real estate professionals. Unlike many states that have a sales professional level of service, Colorado requires all real estate professionals to obtain a level of education sufficient to obtain a broker’s license. The real estate commission has a standardized contract for real estate purchases, and all brokers are required to use this form when creating a contract on behalf of their clients. This benefits both parties to a transaction because both brokers and investors can become very familiar with the pre-written sections of the contract, processes in the contract are consistent from one contract to the next, and title companies are typically used as the closing entity. This contrasts starkly with many states that do not have a standardized contract, so every contract differs depending on which lawyer created the contract on behalf of the buyer or seller. When I receive a contract, I already understand 90% of it’s content, have practiced communicating this contract to my clients, and can focus on the 10% that is different for their unique situation.

Special Advantages to Investors
Breckenridge real estate offers several attractive advantages to investors. I consistently hear remarks that our property taxes are low. Colorado’s reasonably high income tax combined with Breckenridge’s strong income from tourism and sales tax mean that less of its revenue has to come from property taxes. This is an especiallly great bonus to investors who live in places like Florida who pay no state income tax, but can invest in Breckenridge and Summit County real estate and pay low property tax. We are also very fortunate that Summit County real estate typically carries low insurance premiums, as we are free from natural disasters such as tornados, hurricanes, and earth quakes.

Appreciation over time
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Note to out of state investors- 2% withholding fee When you sell your Breckenridge home, Colorado will withhold 2% of the total purchase price (not your total gain!) to cover the payment of any applicable capital gains tax. If the capital gains due are less than 2% of the purchase price, you will receive a rebate of the balance when you file your tax return. Colorado residents are exempt from this automatic withholding, but are still subject to capital gains taxes on the proceeds from most real estate.

1031 Exchange

A little over 40% of my business comes from clients who are doing a 1031 Exchange.

Investors can sell real estate anywhere in the country and defer paying taxes by doing a 1031 exchange and using the proceeds from their sale to buy Breckenridge Real Estate. 1031 refers to the section of the tax code that lays out the guidelines for these transactions. Currently, the IRS allows owners to use their investment for personal use for 14 days a year. This means that you can sell a lot in North Carolina, and purchase a lot, condo, or home in Breckenridge, defer taxes AND have a nice vacation in your home. This is just another one of the advantages that makes real estate investing so attractive. When was the last time you sat in a hot tub with a cocktail and watched the sunset from an asset in your mutual fund?

The IRS has very strict guidelines to follow to complete a 1031 Exchange. If you fail to follow any of their rules, you will pay taxes. You have to hire a Qualified Intermediary- an arm’s length neutral party that helps you prepare the paperwork for the exchange. This person will also hold the proceeds of your sale on your behalf until you close on your replacement property. WARNING: 1031 exchange Qualified Intermediaries are NOT licensed and NOT regulated in how they handle your money. Therefore, you must work with a trustworthy professional to insure both your security and that the deal is completed properly. The 1031 Exchange Experts have a comprehensive description of 1031 exchange regulations and investor tools on their website, and are worth checking out. They are the only company that I know of that will pay your attorney fees should the IRS challenge your 1031 Exchange. You can visit their website by clicking below: [Insert 1031 Button here.]

Using your IRA or 401k to purchase Breckenridge Real Estate

Your IRA or 401k can be another tool for investing in the Summit County market. Many investors don’t know that this is possible or even legal, as traditional IRAs and 401ks usually only allow the investor to pick from a limited range of assets such as stocks and bonds. Real estate was not an option for the retirement account, not because the IRS didn’t allow it, but because the account custodians, usually large financial institutions, didn’t offer it on their menu of options. It is much more cost effective for them to offer a limited amount of investment options than it is to offer a wider range.

The self-directed IRA/401k industry is changing the degree of control investors have over their retirement accounts. The first step in being able to purchase Summit County real estate with your IRA is to place your retirement account with a custodian that allows self-directing. I have done extensive training with Pensco Trust in their preferred professionals program, so feel free to ask me any questions you may have. I won’t know everything, but will know where to refer you when I don’t know the answer. Pensco Trust website contains extensive information about self directed retirement accounts and they have a free monthly webinar that covers many IRA/401k topics. Their website is: http://www.penscotrust.com.

Whoever you decide to use as your custodian, you are ultimately responsible for following the rules set by the IRS, so choose wisely. Make sure that they are regulated either as a bank or as a non-bank custodian. They should be able to provide contact numbers for their regulator, and you should call. Also find out how long they have been around. This will help you evaluate how well they know their business. There are frequently companies on the internet offering account holders check book access to their IRAs. This is not permitted by the IRS, so if you see this offering, run the other way and run fast!