Ten Reasons For a 1031 Exchange

There are at least 10 reasons for exchanging real estate:

(1) keep your investment equity without taxes depleting your sale profit;

(2) minimize or eliminate the need for new mortgage financing on the new property;

(3) get rid of an undesirable property that is difficult to sell and own 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: The new 3.8% Medicare Surtax can be deferred through §1031 exchange.

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 so that you are aware, in advance, of possible tax consequences for your situation. Please check with your REALTOR to make certain the correct 1031 exchange language is in your contract.