Wednesday, August 25, 2021
Posted by The Experts Team
Reader's rate:
3.258825
Section 1031 is an IRS code section that lets you defer tax (in some cases a lot of tax), but of course they don't make the deferral easy. But it's not impossible either.One of the rules that can cause a lot of angst, especially in a fast-moving real estate market like the one we have now, is the... + continue reading
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Saturday, July 10, 2021
Posted by The Experts Team
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In a real estate market moving as fast as it is right now, "flipping" property seems to be the favorite pastime. Flipping is when you buy a property with the intent of turning around and selling it soon after the purchase. But can you do a 1031 exchange and defer the gain in a flip situation?To... + continue reading
Friday, May 28, 2021
Posted by The Experts Team
Reader's rate:
3.18182
It's mid-2021 and the real estate market is red hot. Good properties come on the market but don't last long — sometimes only hours or minutes, and oftentimes there are multiple offers competing against you. As a result, a common question we get right now is, "can I buy a property that is owned by a... + continue reading
1031 Identification Issues in a Hot Real Estate Market
Wednesday, May 5, 2021
Posted by The Experts Team
Reader's rate:
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Section 1031 is an IRS code that allows you to defer real estate capital gains taxes (in some cases, a lot of capital gains taxes). The rules aren't impossible to follow, but they aren't easy, either.One of the rules that causes a lot of angst, especially in a fast-moving real estate market like we... + continue reading
Monday, March 15, 2021
Posted by The Experts Team
Reader's rate:
3.363635
The Internal Revenue Service recently announced that Texas taxpayers—including 1031 exchangers—can have up to June 15, 2021 to file returns, identify replacement property, purchase replacement property, or make other payments due to the chaos caused by February’s winter storms.  For... + continue reading
Photo by Anastasia Shuraeva from Pexels
1031 Identification Issues in a Hot Real Estate Market

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WHAT IS A 1031 EXCHANGE?

When selling a business or investment property, and a gain would be realized, Internal Revenue Code Section 1031 provides for an exception, allowing for tax on the gain to be postponed if the proceeds are invested, in a "like-kind" property exchange. Gain deferred in this like-kind exchange under IRC Section 1031 would be tax-deferred, but not tax-free.

1031 Exchange Definition

You might be wondering, how does a 1031 exchange work? There are certian rules to consider. A properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. IRC Section 1031 (a)(1) states:

"No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment."

To understand the protection a 1031 exchange offers, consider the following example for investors:

  • An investor has a $200,000 capital gain and incurs a tax liability of approximately $70,000 in combined taxes (depreciation recapture, federal and state capital gain taxes) when the property is sold. Only $130,000 remains to reinvest in another real estate property.
  • If we assume a 25% down payment and a 75% loan-to-value ratio, the seller would only be able to purchase a property worth $520,000.
  • If the same investor chose to do a 1031 exchange, however, the entire $200,000 of equity would be able to reinvested in the purchase of $800,000 in real estate, with the same down payment and loan-to-value ratios as above.

Do you see the power of the 1031 exchange? What makes us 1031 Exchange Experts? Years of experience, and walking client after client through the process. Feel free to contact our office today for professional assistance with your 1031 exchange.

Featured Articles

Wednesday, 25/08/21 - 0 comment(s)
Section 1031 is an IRS code section that lets you defer tax (in some cases a lot of tax), but of course they don't make the deferral easy. But it's not impossible either.One of the rules that can cause a lot of angst, especially in a fast-moving real estate market like the one we have now, is the requirement that you identify a list of new... + continue reading

This Week's TEE-Shot

Tuesday, 07/08/12 - 0 comment(s)
If the buyer of your property wants you to carry financing on the sale, the owner carry note will be taxable in a 1031 exchange unless you read this article first. It explains how in... + continue reading

1031Basics

Tuesday, 16/09/14 - 0 comment(s)
1031 exchanges, at least as we know them today, have been around since 1991. Most people in the real estate industry have heard of them and seem to have a good working grasp of how they work, and... + continue reading

1031News

Wednesday, 25/08/21 - 0 comment(s)
Section 1031 is an IRS code section that lets you defer tax (in some cases a lot of tax), but of course they don't make the deferral easy. But it's not impossible either.One of the rules that can... + continue reading