Friday, June 5, 2020
Posted by Mary Lou Schwab
Reader's rate:
3
Due to economic factors or life changes, investors who have held vacation rental property for many years can face significant tax liabilities when they sell it. Federal long term capital gain tax rates can be anywhere from 15 to 20%. The unearned income tax rate is 3.8%, and a depreciation... + continue reading
Friday, April 10, 2020
Posted by The Experts Team
Reader's rate:
4.142855
Happy Good Friday 1031 Clients and Friends! I hope this email finds you well. Good news: the IRS has granted extensions for 1031 Investors who have like-kind exchange deadlines between April 1, 2020 and July 15, 2020. The IRS issued new guidance on April 9, 2020 that granted all taxpayers,... + continue reading
Monday, April 6, 2020
Posted by Mary Lou Schwab
Reader's rate:
3.666665
There are always issues with closing costs associated with 1031 exchanges. All exchangers want to have their closing costs paid with 1031 proceeds without creating a taxable event. Some closing costs paid by exchange proceeds are allowable by the I.R.S., while others are taxable. The I.R.S. Revenue... + continue reading
Tuesday, September 16, 2014
Posted by Gary Gorman
Reader's rate:
3.429825
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 what the requirements are. Occasionally we get calls from someone who has not heard of a 1031 exchange... + continue reading
Tuesday, September 16, 2014
Posted by Kim Bicket
Reader's rate:
3.857145
What is a 1031 Exchange? People ask, “Why should I do a 1031 exchange?” I can answer this question in two words: "Financial Leveraging." By doing a 1031 exchange, the taxes you would have paid to the government are now working to earn you money. A 1031 exchange allows a... + continue reading

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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

Friday, 05/06/20 - 0 comment(s)
Due to economic factors or life changes, investors who have held vacation rental property for many years can face significant tax liabilities when they sell it. Federal long term capital gain tax rates can be anywhere from 15 to 20%. The unearned income tax rate is 3.8%, and a depreciation recapture at 25% could be incurred. Additionally, state... + 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

Friday, 05/06/20 - 0 comment(s)
Due to economic factors or life changes, investors who have held vacation rental property for many years can face significant tax liabilities when they sell it. Federal long term capital gain tax... + continue reading