Why Should You Opt For A 1031 Exchange? Things You Should Know

Why Should You Opt For A 1031 Exchange? Things You Should Know

By | September 20th, 2019|Blog|0 Comments

Are You Also Planning To Sell Your Old Investment Property Like Paul?

A few months ago, we met Paul Atkinson, a middle-aged investor from New York. Paul had two investment properties under his name. He had leased them to local tenants under a gross lease. Though he was receiving rent on those properties every month, he was barely making any profit. Every other week, one of his tenants would call him complaining about the building’s poor condition, and he would have to take care of the repairing. This way, he would end up spending a significant part of his income on the maintenance of the properties.

Paul was worried and had no idea what to do with his properties. So, he came to us to sell one of his properties so that he could get some relief. However, after a healthy discussion with our advisors, Paul chose to do a 1031 exchange instead of going for a direct sale. By doing so, not only he managed to replace his old property with a new one, but he also got relief from property management.

What Is A 1031 Exchange?

Section 1031 of IRC or a 1031 exchange, is an arrangement that allows investors to defer capital gains taxes on exchanging an investment property for another like-kind property. Under a 1031 exchange, if an investor chooses to reinvest the entire proceeds from the sale of their relinquished property into another like-kind property, they can defer paying taxes on the transaction. The benefits of the 1031 exchange aren’t limited to this. Whether you’re seeking relief from day-to-day management responsibilities or looking for a replacement for your old property, 1031 exchange is what you should be doing.

Let’s Simplify The Complexity

Say, you own an investment property, which now you want to sell because of soaring management responsibilities, just as Paul wanted. Let’s assume the current market price of your property is $30 million that you’ll get if you choose to sell it. However, you’ll also be liable to pay taxes on your capital gain imposed by the federal and your state government (which could be anything around 25-35% depending upon the income). Assume it be around 30% in your case.

Properties FMV (Fair Market Value) = $30 million

Capital Gains Tax = 30% of $30 million

= $9 million

Net Profit = $30 million – $9 million

= $21 million

As you can see, you are losing $9 million (which isn’t less) in taxes on selling your property for hard cash. On the other hand, you can save every single penny with a 1031 exchange.

Therefore, choose wisely and multiply your wealth. Contact us to start your 1031 Exchange today!

“Our tax-deferred 1031 exchange programs can save millions in taxes, increase investor equity, and compound annual cash flow distributions and returns”