Weitz Real Estate Blog

Sold via 1031 Tax Exchange

Bryant pics
3111 Bryant St (pictured above) has sold

3111 Bryant St has sold via a 1031 Tax Exchange

Our awesome little house has sold, and it went to an investor utilizing a 1031 Tax Exchange! You might be wondering exactly what a 1031 tax exchange is, and that is a great question.

Per our friends at Exeter1031.com, here is the description of a 1031 tax exchange:

Section 1031 of the Internal Revenue Code (“1031 Exchange”) provides that property held as rental or investment property or property used in your business (“relinquished property”) can be exchanged for “like-kind” property also held as rental or investment property or property used in your business (“replacement property”) allowing you to defer your Federal, and in most cases, state capital gain and depreciation recapture income tax liabilities.

It is important to note that 1031 Exchange transactions are tax-deferred exchanges — not tax-free exchanges — as many speakers, authors and advisors frequently refer to them.  Your capital gain and depreciation recapture income tax liabilities are merely deferred — and can be continually and indefinitely deferred — into like-kind replacement properties acquired as part of a series of 1031 Exchange transactions.

The tax deferral benefits of the 1031 Exchange allow a Investor to sell, dispose or convert real property without reducing his or her cash position by paying capital gain or depreciation recapture taxes.  This provides the Investor with the continued liquidity necessary to increase his or her real estate portfolio by trading up in value and ultimately increasing his or her net worth by improving cash flow and capital appreciation from the portfolio.

A Qualified Intermediary is required when completing a 1031 Exchange transaction.  Section 1031 of the Internal Revenue Code applies to personal property as well as real property.”

Could this strategy be right for you? If you think it could be, we recommend using the good people at Exeter1031.com. Reach out to them for a consult!

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