BR Desota, Class A high-rise apartments in Sarasota, Florida, previous 1031 DST offering

Postponing the tax

When you sell an investment property at a profit, you normally owe capital gains tax. A 1031 exchange lets you postpone that tax by putting the proceeds into another investment property instead.

The rule comes from Section 1031 of the Internal Revenue Code. It says no gain or loss is recognised when you exchange property held for business or investment use for property of like kind, provided the new property is also held for business or investment.

The tax is deferred, not forgiven. But deferring it means your full sale proceeds go to work in the next property rather than a share going to the IRS first.

Deferring capital gains

By exchanging into like-kind real estate, you may defer the tax and keep more capital invested.

Like-kind covers business and investment property. It excludes anything you use personally, such as your home.

Examples of like-kind property

  • Office buildings
  • Retail centres
  • Warehouses
  • Vacant land
  • Duplexes and triplexes
  • Single-family rentals
  • Apartment buildings
  • Condominiums
  • Industrial property
  • Rental resort property
  • Hotels and motels
  • Mineral rights
  • Water rights
  • Air rights
  • Development rights
  • Delaware Statutory Trust (DST) interests
  • Easements
  • New York cooperatives
  • Tenancy-in-common (TIC) interests

Why investors use a 1031 exchange

Defer the tax. A properly executed exchange may let you defer both state and federal tax on the sale. That preserves equity and may improve your total return.

Keep depreciation working. A portion of your monthly income may be offset by depreciation on the new property.

Improve cash flow. You can exchange out of land or an underperforming asset into property that may produce monthly income.

Pursue appreciation. Real estate values need to grow to stay ahead of inflation. An exchange lets you move capital into assets with more growth potential.

These are potential benefits, not assurances. See the disclosures below.

BR Desota, Class A high-rise apartments in Sarasota, Florida, previous 1031 DST offering
Previous 1031 DST offering property

Spread risk. An exchange can diversify your holdings several ways at once — by region, by property type, by tenant industry and creditworthiness, by capital structure, and by ownership structure.

Step back from management. Many investors use an exchange to stop managing property day to day while still holding investment real estate and its potential monthly income.

Reach institutional property. A Delaware Statutory Trust may let you own part of a larger, better-quality asset than you could buy alone. Investors often exchange from raw land or residential rentals into Class A property with credit tenants, professional management and long-term appreciation potential.

Give us a call and lets discuss your 1031 exchange
972-661-1283 ext: 3