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;
- A 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