What is a 1031 Exchange?

The most widely recognized type of 1031 Exchange is utilized for real estate, likely because of the expansive definition of what is considered “like-kind” for Real Estate Exchanges. Under this, any U.S. real estate property held by the client for productive use in a business or trade, or investment can be exchanged for any “like-kind” property, regardless of the grade or quality.   

Real Estate Exchange Example

An institutional investor exchanges an apartments complex valued at $24,750,000 with no debt in New Jersey for a $30,000,000  office building in Texas for a tax savings of over $3 million that can be used to purchase substantially more replacement property.

SALEEXCHANGE
FMV-Apartment Complex$24,750,000$24,750,000
Basis$15,000,000$15,000,000
Gain Recognized$9,750,000-0-
Tax$3,412,500-0-
Tax Deferred Savings-0$3,412,500
Cash available for Reinvestment$21,337,500$24,750,000

For most 1031 Real Estate Exchanges, the combination of appreciation in value and the depreciation amount is taken over the period of time that was owned by the client results in a taxable gain. Numerous investors like to see what kind of tax saving funds they can benefit from the sale of their investment property.

“Our tax-deferred 1031 exchange programs can save millions in taxes, increase investor equity, and compound annual cash flow distributions and returns”