What You Need to Know About 1031 Exchanges

Posted on May 25, 2017

Thanks to historically low interest rates, rising appraisals and continued investment from foreign sources, certain U.S. property owners currently have a unique opportunity to defer taxes on profits earned from the sale of long-held and appreciated real estate. Under Section 1031 of the Internal Revenue Code, owners of investment or business property may defer paying taxes on the gain from property sales when they reinvest the proceeds in similar, like-kind property. Moreover, a like-kind exchange and deferral on gains from investment property may reduce an individual’s exposure to the Net Investment Income Tax (NIIT).

However, executing this type of transaction requires a keen understanding of the tax code and planning under the direction of qualified advisors. Key points that anyone considering a 1031 exchange must take into consideration include:

• The number of years they own a property before a potential sale
• The way in which they structured their ownership of the property
• Whether the property they seek to sell and buy meets the criteria for a like-kind exchange
• The requisite timing to identify and close on replacement property
• Identifying a qualified intermediary to facilitate the transaction

1031 exchanges continue to advance the commercial real estate investment market and can be a vital part of a property owner’s tax-planning process. An estimated 30 percent of $400 billion-to-$500 billion annual commercial real estate transaction volume is carried out using 1031 exchanges.

It is worthwhile for property owners to talk with experienced real estate professionals who can help to guide the decision-making process and determine if and how a 1031 exchange is the best path forward.

The professionals with Orion Real Estate Group work with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.