November 19, 2015

1031 Exchange

For those who don’t understand what a 1031 exchange is, it is a vehicle for buying and selling real estate while deferring taxes for investment purposes. The 1031 rule is one of the most under-utilized sections of the tax code, which means that the investor who has not explored this option may be leaving money on the table.

A 1031 exchange is an IRS driven means to ‘exchange’ properties of like kind and push paying taxes on the sale and purchase to a later date. This can mean significant cost savings to the person executing a this type of sale or purchase which is why it is so popular among commercial real estate investors.

There are 1031 exchange rules and you have to do it right or there can be severe financial impact. Here is a great article that points out not only that this is often an overlooked investment tool, but one that can be advantageous when trying to make sure you don’t leave any money on the table.

If you are considering this type of transaction, we can help you on the real estate side but we highly recommend you discuss this with your CPA and your attorney so that you understand the 1031 from a 360 degree view. While this is a very useful tool for real estate investors, especially those who are constantly upgrading, there are still limitations.

The most common misconception is that this vehicle removes the tax from each purchase. That is not the case. It simply defers tax ramifications until such time that you no longer wish to upgrade your asset(s) at which point tax liability will be incurred. What it does save is the tax liability for each transaction while under the 1031 umbrella.

We understand the process and can help you work through the transactional side of buying or selling real estate in a 1031 exchange.