1031 Exchange
A 1031 exchange, named after Section 1031 of the IRS Code, allows real estate investors to defer capital gains taxes when selling a property by reinvesting the proceeds into a similar, like-kind property. This powerful tax strategy helps investors preserve capital and build wealth
Benefits
Deferral of Capital Gains
Considered the primary benefit of a 1031 Exchange, deferring capital gains taxes allows clients to reinvest the full sale proceeds into a new property
Wealth Building Tool
This exchange can be a powerful strategy to build wealth over time by allowing clients to defer taxes repeatedly, creating long-term value growth
Increased Purchasing Power
By deferring taxes, clients can reinvest the entire sale amount into a higher-value property, potentially increasing cash flow
Estate Planning Advantage
If the client holds the exchanged property until their passing, heirs inherit it at a stepped-up basis, potentially eliminating capital gains taxes altogether
Key Considerations
Confirm Eligibility
Is the property being sold (and the replacement property) held for investment or business purposes? Property must not be personal residence or a flip property
Engage a Qualified Intermediary
Select a trusted qualified intermediary to hold the proceeds from the sale, and ensure they handle all transaction funds
Identify Replacement Properties
Consider listing up to three potential properties or any number of properties with a combined value less than 200% of the sold property's value. Replacement must be of equal or greater value
Consider Ownership and Title Structure
Ensure the same entity or individual selling holds title to the replacement property. For partnerships and LLCs this can be more complex
Understand Key Timelines
45-day rule: identify potential replacement properties within 45 days of the sale. 180-day rule: complete the exchange within 180 days of sale of original property
Documentation
It is important to keep detailed documentation of transactions, including property appraisals, contract, and timelines
Interested in Learning More about 1031 Exchange?
Contact us today to determine eligibility and schedule a brief consultation!
