1031 Exchange

Key Benefits of a 1031 Exchange

• Tax Deferral: Defer federal capital gains tax (15-20%), state capital gains tax (varies by state), federal Net Investment Income Tax (3.8%), and depreciation recapture tax (25%).
• Wealth Preservation: Keep 100% of your equity working for you instead of paying 30-35% in taxes.
• Portfolio Growth: Use deferred taxes as leverage to purchase more valuable properties.
• Diversification: Sell one property and acquire multiple replacement properties.
• Management Relief: Exchange high-maintenance properties for more passive investments.
• Estate Planning: Potentially eliminate taxes through stepped-up basis for heirs.
• Increased Depreciation: Reset depreciation schedules with new property acquisitions.

The 1031 Exchange Process

1. Consult Professionals: Speak with your tax advisor and a Qualified Intermediary before listing your property.
2. List and Sell Property: Market and sell your current investment property as normal.
3. Use a Qualified Intermediary: Before closing, engage a Qualified Intermediary who will hold proceeds from your sale.
4. Identify Replacement Properties: Within 45 calendar days of selling, identify potential replacement properties using one of three identification rules.
5. Purchase Replacement Property: Complete the acquisition of your replacement property within 180 calendar days of your sale.

Important 1031 Exchange Rules

• Like-Kind Requirement: Both properties must be held for investment or business use (primary residences don't qualify).
• Equal or Greater Value: Purchase replacement property of equal or greater value to defer 100% of tax.
• Same Taxpayer: The tax return and entity selling the property must be the same as the one buying the replacement.
• Critical Timelines: 45 days to identify potential replacement properties and 180 days total to complete the exchange.
• Qualified Intermediary: Must use a qualified intermediary to hold funds; direct receipt of proceeds disqualifies the exchange.

Identification Rules

1. Three Property Rule: Identify up to three potential replacement properties regardless of value.
2. 200% Rule: Identify unlimited properties as long as their combined value doesn't exceed 200% of the sold property's value.
3. 95% Rule: Identify unlimited properties of unlimited value, but must acquire at least 95% of the total value identified.

Replacement Property Options

• Traditional Real Estate: Single-family rentals, multi-family buildings, commercial properties, vacant land, etc.
• Delaware Statutory Trusts (DSTs): Passive ownership interests in larger, professionally managed properties.
• Tenants-in-Common (TIC): Fractional ownership in larger properties with other investors.
• Triple Net Lease Properties: Buildings leased to tenants responsible for taxes, insurance, and maintenance.

How ACB Realty Can Help With Your 1031 Exchange

• Help you sell your relinquished property with an understanding of 1031 exchange timing requirements
• Refer you to reputable qualified intermediaries to handle the exchange documentation and funds
• Assist you in identifying suitable replacement properties that align with your investment goals and meet IRS requirements
• Help you navigate the 45-day identification and 180-day closing periods
• Guide you through the purchase process of your replacement property