A Closer Look At The 1031 Exchange

The term 1031 Exchange refers to the IRS tax code that defines the conditions and rules that must be followed when executing the strategy. A 1031 Exchange allows investors to defer Capital Gains taxes on the sale of investment properties when purchasing a property that is considered "like kind" within a certain timeframe.

Understanding Terminology
Relinquished Property/properties: The Property being sold.
 
Replacement Property/properties: The Property being acquired.
 
Identification Period: The period of time from the close of the relinquished property taxpayer must identify replacement properties.
 
Exchange Period: The period of time from the close of the relinquished property the taxpayer has to close on the replacement property.
What are the benefits of a 1031 Exchange?
When executed effectively, A 1031 Exchange allows an investor to:
-Defer Capital Gains taxes, specifically Long Term Capital Gains tax
-Apply all proceeds to the replacement property thus increasing buyer power
-Can involve multiple properties to provide greater diversity or consolidation to upgrade investments
-Great tool for estate planning and can be used to allow adult children to pre-determine their inheritance
Why Consider a 1031 Exchange?
Investors seeking to upgrade or diversify their portfolio may want to look at a 1031 exchange strategy. Other situations where a 1031 exchange strategy may be considered include:
-When Rental Properties have become a burden, and you want to simplify life.
- You want to purchase higher performing properties that meet your investment objectives
-Build a legacy with real estate while alive
-Create an inheritance plan for their children
-Prevent family disputes with real Estate Planning
 
As you can see, there are many scenarios where a 1031 exchange can be applied. It is important to work with our team and your trusted team of professionals, including your tax advisor, financial advisor and trust attorney to ensure the strategies are applied effectively and in a manner that meets all of family's goals.
Start a Real Estate Plan
Unfortunately, often families wait too long to determine the best options for their loved one. Sometimes a physical or health related event forces families into making rushed decisions, with limited information, while dealing with the needs of the loved one. This is a Reactive Approach to the
 
Most people find it easier to plan well in advance, and many find making a move much easier prior to any health or physical concerns clouding the process. This is taking a Proactive Approach! Fortunately, we can help families reduce or eliminate the stress by creating a Real Estate Plan.
 
A Real Estate Plan begins with a simple Strategy Session to discuss your family's goals.
 
*Please consult a trusted Tax Advisor regarding any tax considerations.

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