1031 FAQ

1031 FAQ

Frequently asked questions about 1031 investments.

What is a 1031 Exchange?

Internal Revenue Code Section 1031, or as it is more commonly known, the 1031 Exchange, allows the exchanger to defer all immediate taxable liability indefinitely, as they sell one investment property for another within a defined period of time and by meeting certain federally regulated guidelines.

What are the advantages of a 1031 exchange?

By deferring the tax, you are in effect, receiving an interest-free loan from the federal government, in the amount you would have paid in taxes. Gains from depreciation recapture are postponed. You can proactively cut your tax burden by reallocating your investment portfolio, acquiring and disposing of properties without paying taxes on any gains. As the value of your investment properties increase, you can repeatedly trade up, enriching your portfolio, all while repeatedly deferring taxes. Upon the death of the property owner deferred tax on capital gains is forgiven and heirs receive a stepped-up basis equivalent to fair market value.

Do you have highly appreciated investment real estate or personal property?

Investing in real estate or personal property can be a great way to grow your net worth. A 1031 Exchange can be a great tool to continue growing your portfolio while deferring Federal and State capital gain and depreciation recapture income taxes. The 1031 Team and their team of experts can handle any variety of property to find the right solution for your exchange.

Have you closed on the sale of your relinquished property (the property you are selling)?

At closing, investors interested in a 1031 Exchange should include a cooperation clause to the purchase agreement, stating the intention of this transfer to be part of a 1031 Exchange. From the day you close the sale of your Old Property, you have 45 days to complete a list of properties you might want to buy.  The 1031 Team can help you properly identify properties based on your investment needs utilizing our diversified list of investment properties.

Have you thought about your tax burden from the sale of your property?

Investors with a highly-appreciated asset do not want to lose 40-50% of its value to the IRS through Federal and State capital gain and depreciation recapture income taxes. A 1031 Exchange allows investors to defer those taxes, thereby preserving equity. The 1031 Team can tailor your exchange portfolio to maximize cash flow, match leverage, and add diversity to your real estate. They can also provide a solution to mitigating taxes when cash proceeds and a taxable event occurs.

Would you like to go from active management to passive management?

Actively managing an investment property can become a full-time job. One of the benefits of a 1031 Exchange is the ability to relinquish ongoing property management while maintaining passive real estate investment exposure and the potential for stable, monthly income.

Would you like better diversification from your real estate?

Investing in one style of real estate comes with its own set of risks. A tax-deferred 1031 Exchange can be a powerful tool to realize investment diversification, which may be achieved by: diversification in geographic regions, asset class, tenant industry and creditworthiness, capitalization structure, and/or ownership structure. The 1031 Team has one of the most diversified investment lists in the industry and will help diversify your portfolio properly.

Are you an accredited investor?

An accredited investor is generally known as meeting one of the following requirements:

  • An individual with at least $1,000,000 in net worth excluding primary residence
  • An individual with at least $200,000 of income for the last two years (or $300,000 combined income if married)
  • A director, executive officer, or general partner of the company selling the securities
  • A business in which all the equity owners are accredited investors;
  • trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes
  • A charitable organization, corporation, or partnership with assets exceeding $5 million

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All investments involve risk. Outcomes are not guaranteed.

The 1031 Team, Dempsey Lord Smith, LLC and SmartLife Financial Group, LLC do not provide legal or tax advice.

*Investing has risks, performance is not guaranteed. Securities offered through Dempsey Lord Smith, LLC (member FINRA/SIPC). Advisory Services offered through SmartLife Financial Group, LLC. Natalia Nevin is an independent representative of Dempsey Lord Smith. No offer to buy or sell securities is being made. Such offers may only be to qualified accredited investors via private placement memorandum. Neither DLS, SFG nor Natalia Nevin are tax advisors. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Investments are not guaranteed or FDIC insured and risks may include but are not limited to complete loss of principal investment. Risks detailed in a private placement memorandum should be carefully reviewed, understood and considered before investment. Changes in the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made.

Risk Disclosure: Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss. NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by Natalia Nevin, Dempsey Lord Smith, LLC, SmartLife Financial Group, LLC or any affiliate, or partner thereof. Natalia Nevin and The 1031 Team do not warrant the accuracy or completeness of the information contained herein. The 1031 Team, DLS and SFG are unaffiliated.

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