1031 Exchanges

Section 1031 of the Internal Revenue Code (“IRC”) allows a taxpayer to defer capital gains taxes on the exchange of business or investment property. The exchange can take the form of a direct swap or the taxpayer may hire a qualified intermediary to hold the sale proceeds until the taxpayer directs the qualified intermediary to use them to acquire like-kind replacement property.

Benefits of a 1031 Like-Kind Exchange

Federal capital gains taxes, State income taxes and depreciation recapture from the sale of property are deferred. The tax savings provide more money to reinvest in replacement property. Section 1031 allows a taxpayer to diversify or consolidate a portfolio of investment properties.

Because the taxpayer’s heirs receive a stepped up basis (FMV at Date of Death), exchanges can be attractive estate planning tools. Under Section 1031 of the Internal Revenue Code, owners of real estate held for investment or use in a trade or business can swap their property tax-free for "like-kind" real estate. Exchanges are made for people wanting to stay invested in real estate, increase their leverage and to avoid paying hefty taxes upon the sale of property.

Qualifying Properties

Non-Qualifying Properties

Reasons to Exchange

1. Exchanging non-income producing property, for property that provides a positive cash flow in the form of rental income.
2. To upgrade size and/or quality of investment, or to transfer holdings from residential to commercial property.
3. An exchange can be utilized to combine the equity of one or more properties into a larger singular investment.
4. To change investment location. An exchange can be executed in anticipation of market trends to maximize appreciation potential.