The 1031 Exchange

Real estate investors:

Wouldn't you have to "re-think" your investment strategies if you knew you never had to pay taxes?

Invest the government's money along with your own then completely and indefinitely defer both capital gains taxes and recapture of depreciation using benefits within the Internal Revenue Code. Some tax benefits the IRS allows:

• Huge gains on each sale of your qualified personal residence are tax free

• You can write off depreciation even though you had no cash outlay

• Your long term capital gains are taxed at a lower rate

• The tax basis on your inherited property is stepped-up to its value at time of death and

• With a Section 1031 exchange you can defer tax completely and indefinitely

And you should consider the non-tax related benefits of a 1031 exchange – opportunities to:

Change the location of your real estate holdings to:

A place nearer your home , your work, your sphere of influence, where you might want to retire in the future, near where your children will be better able to tend to it for you, or to an area that is more inclined to appreciate in value

Change the nature of those investments to:

Get properties with more (or less) cash flow opportunity , consolidate your holdings, scale down or break up your holdings perhaps to facilitate a community property settlement or a distribution to co-heirs, adjust your portfolio and the mix of properties, or address management concerns such as exchanging properties requiring your personal attention for institutionally managed real estate investments

How can an IRS Section 1031 tax-deferred exchange help a real estate investor?

Let's say that you "sell" for $100,000 a vacant lot that you bought for $20,000 then reinvest the proceeds in a duplex rental property. You may have to pay about $16,000 in Federal, State and local tax on the $80,000 long-term capital gain. Assuming no other expense of the sale or purchase, all of your net proceeds are used to buy an $84,000 duplex. Applying 5% inflation per year, the duplex will be worth about $107,208 in five years.

Section 1031 exchange…

But on the other hand , had you structured the transfer of the lot and subsequent reinvestment in a duplex under Section 1031 there would have been no tax payable and the whole $100,000 price could have been invested in a better duplex; and with inflation that duplex would have appreciated to $127,628 in five years – you could have made and extra $20,421 using 1031 . The difference is, you kept and invested the government's tax money.

Take your pick…

Sell then Buy, Worth $107,208:                 1031 Exchange, Worth $127,628:

And imagine what you could do by combining all of the tax benefits available in the Code.

1031 Trust-Counsel, LLC is a Qualified Intermediary and is precluded from giving tax or legal advice. You must consult with your tax of legal advisor about your specific circumstances.

For a complimentary copy of our 1031 book in pdf format click 1031 BOOK
How to Start a 1031 EXCHANGE

1031 Exchange Counsel, LLC
IRS 1031 "Qualified Intermediary" 877.884.1031