1031 Exchanges

Internal Revenue Code Section 1031 is one of the single greatest wealth building tools available to a real estate investor. It allows investors to defer the payment of capital gains taxes when selling an investment property and exchanging into another investment property.

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Why Consider a 1031 Exchange?

Deferral of Taxes
Leverage and Increased Cash Flow for Reinvestment
Estate Planning
Defer 100% of your capital gains taxes. A 1031 Exchange allows you to sell your investment property and reinvest in a replacement property in order to defer ordinary income, depreciation recapture and/or capital gains taxes.
By deferring taxes, you will have more money currently available for investment. This increased purchasing power gives you the extra leverage to acquire, for example, a property or several properties with significantly higher investment benefits than if you sold the original property, paid all the taxes associated with the sale and purchased a new property.
If you own a property or several properties burdened with extensive maintenance costs and requiring intensive management, you may exchange and replace the property(ies) for others with less responsibility.
A common challenge among family members who inherit a large piece of real estate is agreeing on what to do with the property over time. A 1031 exchange provides family members with the opportunity to acquire several properties in exchange for one large property enabling each family member to realize his or her individual investment objective.

Understanding The §1031 Exchange Process

As per IRC §1031, a valid property exchange is the selling of an investment property with the intention of reinvesting the profits into a new property thus deferring capital gains taxes. These transactions allow investors to continue investing in other properties without losing their investment equity to taxes.

If you exchange investment property exclusively for “like-kind” investment property, there is no immediate tax liability thereby making the exchange a desirable option for investors eager to keep the property’s equity for re-investment.

With a 1031 exchange, the replacement property must be identified within 45 days and acquired within 180 days of the sale of the relinquished property. To be eligible for a safe harbor tax deferral, the proceeds must be held by a qualified intermediary between the time of the sale of the relinquished property and the purchase of the replacement property.

A 1031 exchange is a three-step process and one in which a Beacon specialist will guide you through:

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