What is a 1031 Exchange?
A 1031 exchange is a tax-deferred exchange of property held for business or investment purposes. The term 1031 exchange comes from Section 1031 of the IRS code which allows a taxpayer to defer the capital gains taxes on the sale of their property if they purchase new property within a set window of time. A 1031 exchange can be very beneficial to taxpayers who are considering selling their current properties and buying new ones.
What are the Benefits of a 1031 Exchange?
The main benefit of a 1031 exchange instead of simply selling one property and buying another is it allows you to defer paying capital gains taxes. This frees up more capital to invest. A 1031 exchange also allows you to diversify your investments. Section 1031 of the IRS code requires owners to exchange their current property for an investment in a “like-kind” property. Like-kind is defined very broadly and allows for exchanges across state lines, property types, and industries.
As an example, an owner of a multi-plex could sell and use a 1031 exchange to invest the profits into a medical facility in another state that may have better returns. This contributes to portfolio diversity. A 1031 exchange would also allow the multiplex owner from the previous example to move their capital into an investment property that they do not have to personally maintain – giving them more freedom, more time, and less hassle.
How to Qualify for a 1031 Exchange?
Simply put, any investment property or income-producing property qualifies for a 1031 exchange. Properties used for personal use, such as a primary residence or second home, do not qualify.
If you find yourself in the position to consider a 1031 exchange, take the initial step of finding a Qualified Intermediary (QI) who can legally help you start your 1031 journey. When the time comes to identify a property, remember that Millcreek Commercial has 1031 exchange properties ready for your identification!
Why Consider a 1031 Exchange?
Any property owner or investor who expects to acquire replacement property after selling their existing property should consider a 1031 exchange. To do otherwise would necessitate the payment of capital gain taxes in amounts that can approach 30%. We aim to help investors keep more of their hard-earned money working for them.
Our model allows multiple buyers to co-own high-quality commercial real estate through a Tenant-in-Common structure. This gives each investor the freedom to purchase the percentage of the property that best fits their current investment plan—anywhere from one to one hundred percent. Our “have it your way” approach gives you access and flexibility. No matter your exchange amount, we can cover it down to the penny. Each buyer receives their own deed to the property and benefits from all of the income, tax shelters, and appreciation it provides.
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keywords: investment property, commercial property, residential property, types of properties that qualify for section 1031