1031 Exchange Explained
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Transcript of 1031 Exchange Explained
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Increase the Earning Power of Your Investment Property with a
1031 Exchange
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What is a 1031 Exchange?
An investment strategy for selling a qualified property, and
then proceeding to acquire another qualified property
within a specific time frame.
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Benefits of a 1031 Exchange: Tax Benefits• The Capital Gains Tax
- Short term capital gains tax• investment held less than one year (based on tax
bracket)• long term capital gains tax Investment held longer
than one year 0-25% federal tax (based on tax bracket)
- Recapture of depreciation tax - flat 25%
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Benefits of a 1031 Exchange: Summary
• Increase portfolio of wealth • Change type of investment property • Move and exchange your investment
property to a new location • Updated depreciation schedule for your
investment property
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You Can Also Diversify Your Exposure & Risk
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Strategy to Maximize Cash Flow
• Diversify Your Risk• Maximize Cash Flow• No Taxable Event
VS.
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Rules Around 1031
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Time Requirements
• Identification of Replacement Property- 45 days from the close of the relinquished
property to identify replacement properties.
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• Acquire the Replacement Properties- 180 days after the close of escrow
OR- April 15th (or date taxes are filed), whichever
comes first
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Timeline
Day 0Close of Escrow
45 Days*Identify
Property(ies)
180 DaysClosed on
New Property*No extensions
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Replacement Property Requirement
• The Three Property Rule- Maximum of (3) replacement properties
without regard to fair market value
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OR…• 200% Rule
- If more than (3) properties, the total aggregate value of all replacement properties cannot exceed 200% of the relinquished property value
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• Example of 200% Rule
Replacement Property Requirement (cont’d)
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Exception to 200% Rule
• 95% Rule- If too many properties are identified, you must
acquire 95% of the total value of all identified properties to still qualify for an exchange
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Exchange Funds
• Buy properties of equal or greater value of relinquished property
• Assume the same amount of debt $$$- New cash offsets new loan - Too great of a loan
• Use the proceeds/cash in the new property/properties
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Summary
• 1031 Exchange is a tax code• Upgrade properties w/o a taxable event• Increase the value of your holdings • Increase cash flow
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HomeUnion
Real Estate Investment Management Firm
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