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.

The 1031 Exchange Process

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.

 

The Framework for a Successful 1031 Exchange:
The “1031 exchanger” has an investment property they are selling and enters into an agreement with a Qualified Intermediary to facilitate the exchange. When the property is sold, proceeds from the sale are wired to the Qualified Intermediary for holding while a replacement property is identified and purchased.

According to IRS rules, the individual or entity participating in the 1031 exchange has 45 days after close of escrow on the sold property to identify a suitable replacement property.
The IRS requires the “1031 exchanger” to close on the replacement property within 180 days of the sale of the relinquished property.

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 Portion of Commercial Real Estate

  • Property Type: Commercial Real Estate

  • Exchange Price: $410,000

  • Monthly Rental Income: $2,050

  • Monthly Expenses: ($36)

  • 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 Kevin Long, Millcreek Commercial President & CEO Talk

About the Benefits of a 1031 Exchange

2100 PLEASANT GROVE BLVD, SUITE 200, Pleasant Grove, UT 801-899-1943  CONTACT@MILLCREEKCOMMERCIAL.COM

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