WHY EXCHANGE INSTEAD OF SELLING?
The simple answer is tax avoidance. Since 1921, Internal Revenue Code 1031 has sanctioned tax-deferred exchanges of investment and business properties. A qualified tax-deferred trade up is viewed, taxwise, as one continuous investment.
There are at least 10 reasons for exchanging real estate:
(1) keep your investment equity without tax erosion of your sale profit;
(2) minimize or eliminate the need for new mortgage financing on the acquired property;
(3) get rid of an undesirable property that is difficult to sell and acquire a better property;
(4) increase your depreciable basis;
(5) acquire a property which better meets your needs, such as more cash flow or easier management;
(6) partially defer profit tax by trading down to a smaller property that suits your needs;
(7) avoid depreciation recapture tax when selling a property;
(8) refinance either before or after the trade to take out tax-free cash;
(9) accept an unexpected purchase offer to sell a currently-owned property without owing tax; and
(10) completely avoid capital gains tax by still owning the last property in a chain of tax-deferred trades.
Note: Like kind exchanges are often complicated. A failure to follow the rules may disallow your exchange. Please check with your attorney or investment/financial professional before entering into an exchange.


