1031 Investments

1031 Exchanges

When it is time to sell an investment property (met expectations, fully depreciated, tired of active management), there are many factors to consider. Whether investors are seeking to maximize gains, looking to increase the current level of income, or seeking to dispose of an underperforming asset, simply liquidating a property can create a number of taxable or recapture liabilities and obligations. Investors are taking the first step in maximizing investment results by executing a 1031 Exchange. In some of the highest tax brackets, simply “cashing out” can erode up to 40% of the gains on profitable, low basis assets on a combined state and federal level. With guidance from the Internal Revenue Service, investment sponsors construct securitized real property investments for use as suitable replacement property in a 1031 Exchange. Investments in private offerings are generally illiquid in nature, do not offer guarantees of income or that objectives will be met, may be considered speculative in nature and could lose some or all of their value and principal investment. Some investments herein may not be suitable for all investors. We recommend you work closely with all your advisors to make the best decisions for your personal financial portfolio. By reinvesting sale proceeds into a securitized fractional real property program, investors may:

  • Defer Tax Liabilities Indefinitely
  • Keep Investment Dollars Fully Invested
  • In Many Cases Improve Upon the Grade and Quality of Holdings

An investment in real estate or other real property can provide unique investment portfolio benefits. Property owners often seek a steady stream of income, capital appreciation and property-related tax advantages. Yet some property owners may no longer be interested in actively owning and managing property, but still want an allocation in real estate. For those individuals, securitized fractional real property investing may be the perfect fit.

While there are many benefits to 1031 DST investing, there are strict timing limitations. Specifically, if a 1031 exchange transaction is not properly constructed and executed in a timely manner, then an investor may lose all tax benefits of such transaction, including depreciation recapture. The relinquished property must be a qualifying property (i.e., like-kind replacement property). A Qualified Intermediary, as an independent third party, is needed to facilitate a 1031 exchange transaction and hold the funds on behalf of the investor.

Investments in private offerings are generally illiquid in nature, do not offer guarantees of income or that objectives will be met, may be considered speculative in nature and could lose some or all of their value and principal investment. Some investments herein may not be suitable for all investors. We recommend you work closely with all your advisors to make the best decisions for your personal financial portfolio.

Characteristics of a 1031 Exchange

A tax-deferred exchange is a transaction involving the sale and purchase of investment property or property held for productive use in a trade or business which meets requirements of Section 1031 of the Internal Revenue Code and qualifies for non-recognition of gain or loss. Technically, the exchange is tax-deferred, not tax-free, since the gain deferred in the transaction will be recognized on the ultimate sale of the replacement property received in the Exchange. During a tax-deferred exchange, the investor may not have constructive receipt of their exchange funds. Therefore, a Qualified Intermediary (QI) as an independent third party is needed to facilitate a 1031 Exchange transaction and hold the funds on behalf of the investor.

When structuring an Exchange, there are two critical time limitations that begin on the day the original property is sold.

It is important to note that the identification period and the closing period do run concurrently, and make no concession for weekends and holidays.

In addition to the time limitations when completing an Exchange, investors must also consider the value requirement. There is a general rule of thumb used in order to meet the exchange value requirement for full deferral treatment:

“ANY CASH RECEIVED PLUS DEBT RELIEVED FROM THE RELINQUISHED PROPERTY MUST BE REINVESTED INTO THE REPLACEMENT PROPERTY.”

The only exception to the above is with the investment of new cash to replace any or all of the debt relieved. Additional debt, while allowed when acquiring a replacement property, does not get an exchanger to the value requirement if cash is withdrawn from the transaction.

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All investments involve risk. Outcomes are not guaranteed.

The 1031 Team, SANDLAPPER Securities, LLC and Sandlapper Wealth Management, LLC do not provide legal or tax advice.

*Investing has risks, performance is not guaranteed. Securities offered through SANDLAPPER Securities, LLC (member FINRA/SIPC). Advisory Services offered through Sandlapper Wealth Management, LLC an SEC Registered Investment Advisor. Natalia Nevin is an independent representative of SANDLAPPER Securities. No offer to buy or sell securities is being made. Such offers may only be to qualified accredited investors via private placement memorandum. Neither SLS, SWM 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, SANDLAPPER Securities, LLC, Sandlapper Wealth Management, LLC or any affiliate, or partner thereof (“SANDLAPPER”). Natalia Nevin and The 1031 Team do not warrant the accuracy or completeness of the information contained herein. The 1031 Team, SLS and SWM are unaffiliated.

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