1031 Exchanges – Overview

Section 1031 of the Internal Revenue Code provides a strategy for deferring the capital gains and depreciation recapture tax that may arise from the sale of investment/business property. By exchanging, investors may defer tax and reinvest all of the proceeds in the replacement property.

Since 1921 the tax code has allowed that any real estate held for investment or productive use in a trade or business may be exchanged for any other real estate that is held for investment or productive use in a trade or business. An apartment may be exchanged for an office property, office for retail, raw land for a TIC or DST, etc.

Section 1031 of the Internal Revenue Code Specifically States:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business, or for investment purposes if such property is exchanged solely for property of like-kind, which is to be held for productive use in trade or business or for investment purposes.”

Reasons to Consider a 1031 Exchange:

• Deferral of Tax on Capital Gains and Depreciation Recapture
• Relieve the burden of active real estate ownership and property management
• Improve cash flow and appreciation potential
• Ability to exchange into a higher quality property or properties
• Achieve greater diversification
• Facilitate estate planning

Neither 1031 Investment Services, LLC nor DFPG Investments, Inc. provide tax or legal advice.  Investors should consult with a qualified tax or legal professional regarding 1031 exchange and/or tax related issues.