Defer Taxes

A 1031 Exchange is used by experienced real estate investors to defer paying their capital gains tax upon the sale of an investment property. It works by exchanging the first property (the relinquished property) for a new property that the investor wishes to acquire (the replacement property). By entering into a 1031 Exchange for this transaction, a taxpayer defers their tax to the liquidation of the replacement property at some time in the future.

The taxes deferred through the process are:

Federal Capital Gains
State Capital Gains (except in the commonwealth of Pennsylvania)
Recapture of Depreciation
3.8% Net Investment Income Tax

In many cases, the taxes deferred can be 30% or higher. The 1031 Exchange allows you to retain wealth by allowing you to keep those tax dollars and use those funds to reinvest into new replacement property, increasing your purchase power.

For more information, please reach out to your tax professional for specific questions or contact the professionals here at Security 1st Exchange for assistance.

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Basics of a 1031 Exchange

To structure a 1031 Exchange property under I.R.C. Section 1031, there are some basic requirements that a taxpayer must meet.

Closing Costs

There are always questions from taxpayers as to which closing costs can be paid with sales proceeds when doing a 1031 Exchange. This article provides some overall guidance on the topic.

1031 Disclosure

The IRS requires that if any party to a transaction wishes to do a 1031 Exchange, all parties to the closing are made aware. The best place to do this is in the purchase and sale agreement.

Identification Rules

Section 1031 requires that a taxpayer doing an exchange identify their replacement property while following certain rules.