1031 Exchange

1031 Exchange


This material is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.

Full Transcript

A 1031 exchange refers to Section 1031 of the US tax code, which allows investors to defer capital gains taxes from the sale of investment property, provided that funds are “exchanged” or reinvested in like-kind property, which is broadly defined as property held for investment or business purposes.

Similar to a 401k, a 1031 exchange may efficiently build wealth by keeping more dollars at work. The IRS allows subsequent exchanges each time a property is sold, allowing equity to grow tax-deferred over an extended period of time.

Like many tax provisions, 1031 exchanges are subject to several rules, which if violated, may jeopardize tax deferment treatment. However, with proper planning a 1031 exchange can be a powerful wealth-building tool. Less tax implications may result in higher-value investments, both in equity and cash flow.

1031 exchanges can also be an important component of estate planning. With proper planning, at the time of the investor’s death, properties may be passed down to their heirs on a stepped-up tax basis, potentially allowing for tax-free inheritance.

1031 exchanges have allowed many real estate investors to grow equity over the long term and provide tax efficient generational wealth transfer. When properly executed, they are the foundational step in creating an Investment Property Wealth Management® strategy.