The 1031 Exchange is commonly used tool for real estate investors to defer taxes on gain in the sale of a property. This type of sale can be utilized in transactions involving business or investment properties. Derived from the Internal Revenue Service’s code Section 1031, the exchange is described as such:

An investor can postpone the tax consequences of selling their property when purchasing another property for the same use.  To defer all taxes otherwise due upon sale, the aggregate fair market value of all replacement property received must be equal to or greater than the aggregate fair market value of all relinquished property. If you trade down in either equity or debt, the difference may be taxable to the extent of your gain.

Reasons for Exchanging include:

• Deferring taxes on gains allows the investor to reinvest more money from the sale into the next property
• Consolidation of several smaller properties into one larger investment to facilitate management or improved
  cash flow
• Shifting investment from one area, locale or type of asset to another to take advantage of local market opportunities
• Avoiding “deferred maintenance,” and the associated capital investment, by trading out the older properties
  into newer ones
• Diversification of investment portfolios by trading out of a single property, or type of property, into various investments or multiple properties

Specific guidelines should be followed to qualify for a 1031 Exchange.  Investors are encouraged to seek legal and tax advice prior to beginning the process.

For a FREE Brochure on 1031 Exchange to address Common Questions….