Flexibility in how you preserve, manage, and improve your family’s investment properties to suit your life plan — that’s what 1031 Exchanges can give you by deferring costly capital gains tax when you sell one property to purchase another.

1031 Programs

Flexibility in how you preserve, manage, and improve your family’s investment properties to suit your life plan — that’s what 1031 Exchanges can give you by deferring costly capital gains tax when you sell one property to purchase another.

Flexibility in how you preserve, manage, and improve your family’s investment properties to suit your life plan — that’s what 1031 Exchanges can give you by deferring costly capital gains tax when you sell one property to purchase another.

When a 1031 Exchange May Make Sense

  • You’d like to upgrade from a duplex to a triplex. Use a 1031 Exchange when you sell the old property and put the entire proceeds toward the new one.
  • You perceive better opportunities in a commercial property than what you’re now realizing from one of your residential rentals. Using a 1031 Exchange, you can exchange one kind of property for another, diversifying your investment property types.
  • You see great leasing potential in a low-priced fixer, but don’t have ready cash for necessary capital improvements. Use a 1031 Exchange to sell an investment property of higher value, purchase the fixer, and apply the difference in “build to suit” improvements.
  • You’re ready to retire from being a busy landlord for your tenants. Use a 1031 Exchange to purchase low-maintenance vacant land that you can pass on to your heirs.
  • You want to move out-of-state to be closer to your grandchildren, but need to preserve your investment properties for generated income and your heirs. Use a 1031 Exchange to sell those properties and purchase replacements in your new home state.

The purpose of 1031 Exchanges is to allow investor-owners to move laterally or upward as they manage their investment property portfolios, deferring capital gains taxes on the sale and recapture of depreciation so they may put that money instead toward greater investments.

The IRS allows this only with exacting documentation on both the sale and replacement properties within scrupulously regulated timeframes. An investor-owner must retain a Qualified Intermediary to generate the documentation pursuant to IRS requirements, as well as to hold and transfer exchange funds, during the 1031 timeframe.

In-depth information about the history and specifics of 1031 Exchange types summarized below is available in many places, including our own Exchange Guide that we provide free on request. We recommend you use such resources to familiarize yourself with 1031 Exchanges, but we also advise that though the procedures appear to be clear cut, in practice there are technical details that need to be analyzed. Exchanges are as different from each other as the investor-owners who use them, so at ERI, we stay meticulously up-to-date on rulings and court decisions so we can help you implement your particular exchange correctly.

Investment properties eligible for 1031 Exchanges include commercial, agricultural, industrial, residential, vacant land, and personal property generally associated with a business. Primary residences and second homes do not qualify.

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