1031 Exchange

Discover Tax Deferred Exchanges

Thanks to IRS Section 1031, a properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. IRS Section 1031 (a)(1) states: “No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment, if such real property is exchanged solely for real property of like-kind which is to be held either for productive use in a trade or business or for investment.”

A 1031 exchange allows you to avoid paying capital gains taxes when you sell investment real estate and reinvest the proceeds from the sale within certain time limits in real estate of equal or greater value.

Many of our clients purchase TIC ownership through a 1031 exchange. A 1031 tax-deferred exchange is a method of selling one property and acquiring another without paying capital gains tax on the transaction. In such an exchange, the deferral of capital gains tax is indefinite.

In 2002 the IRS endorsed the TIC ownership structure as an acceptable means of deferring capital gains tax through a 1031 exchange. Our properties satisfy all of the requirements for this tax-deferral vehicle. By consistently maintaining an inventory of excellent properties, Millcreek Commercial Properties is always able to help our clients meet the strict timelines imposed to complete an exchange.

Below represents a case study of a co-owner that exchanged into a Millcreek Commercial Property from a residential investment property:

Owning a Residential Rental

• Property Type: Residential Rental
• Sales Proceeds: $410,000
• Monthly Rental Income: $1,700
• Monthly Expenses: ($300)
• Monthly Profit: $1,400
• ROI: 4.10%

Owning a Millcreek Property

• Property Type: Commercial Real Estate
• Exchange Price: $410,000
• Monthly Rental Income: $2,050
• Monthly Expenses: ($28)
• Monthly Profit: $2,022
• ROI: 5.92%

Why Exchange into a Millcreek Commercial Property?

Residential Rental

  • Purchased in 1992
  • Purchase price: $100,000
  • Land value: $20,000
  • Anticipated Net proceeds from sale: $500,000

Stock Market

  • Net proceeds: $500,000
  • Depreciation recovery: $80,000 * .25 = $20,000
  • Federal capital gains: $400,000 * .20 = $80,000
  • NIIT: $400,000 * .038 = $15,200
  • State taxes: $400,000 * .075 =
    $30,000
  • Total tax: $145,200
  • Total amount to invest: $354,800

Millcreek Commercial Property

  • Net proceeds: $500,000
  • Depreciation recovery: Deferred
  • Federal capital gains: Deferred
  • NIIT: Deferred
  • State taxes: Deferred
  • Total tax: Zero
  • Total amount to invest: $500,000

Watch Spencer Taylor, Millcreek Commercial C0-Founder, talk about the Benefits of a 1031 Exchange

Exchanging Hassle For Happiness

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