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How Can My Family Benefit from a 1031 Exchange?

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What is a 1031 Exchange?

The 1031 Exchange is one of the most underused tools in Real Estate. When the

A 1031 Exchange allows you to defer the tax on Capital Gains when you sell a property. Capital Gains Taxes are one of the greatest obstacles to building and transferring generational wealth. Generally, a 1031 Exchange involves selling one or more properties and acquiring one or more properties at equal or greater value that better suit your goals. It is typically applied to investment properties.

For example you own a rental property that you find to be underperforming after running an asset performance test and you want to sell it in favor of a higher performing rental property.

There are a rules and timelines associated with executing a 1031 Exchange, and the consequence of not meeting the rules can be great. This is why it is crucial that we partner with your trusted tax advisor to ensure all of the criteria is met.

A Closer Look At The 1031 Exchange

The term 1031 Exchange refers to the IRS tax code that defines the conditions and rules that must be followed when executing the strategy. A 1031 Exchange allows investors to defer Capital Gains taxes on the sale of investment properties when purchasing a property that is considered "like kind" within a certain timeframe.

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Understanding Terminology

Relinquished Property/properties: The Property being sold.

Replacement Property/properties: The Property being acquired.

Identification Period: The period of time from the close of the relinquished property taxpayer must identify replacement properties.

Exchange Period: The period of time from the close of the relinquished property the taxpayer has to close on the replacement property.

What are the benefits of a 1031 Exchange?

When executed effectively, A 1031 Exchange allows an investor to:

-Defer Capital Gains taxes, specifically Long Term Capital Gains tax

-Apply all proceeds to the replacement property thus increasing buyer power

-Can involve multiple properties to provide greater diversity or consolidation to upgrade investments

-Great tool for estate planning and can be used to allow adult children to pre-determine their inheritance

Why Consider a 1031 Exchange?

Investors seeking to upgrade or diversify their portfolio may want to look at a 1031 exchange strategy. Other situations where a 1031 exchange strategy may be considered include:

-When Rental Properties have become a burden, and you want to simplify life.

- You want to purchase higher performing properties that meet your investment objectives

-Build a legacy with real estate while alive

-Create an inheritance plan for their children

-Prevent family disputes with real Estate Planning

As you can see, there are many scenarios where a 1031 exchange can be applied. It is important to work with our team and your trusted team of professionals, including your tax advisor, financial advisor and trust attorney to ensure the strategies are applied effectively and in a manner that meets all of family's goals.

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Unfortunately, often families wait too long to determine the best options for their loved one. Sometimes a physical or health related event forces families into making rushed decisions, with limited information, while dealing with the needs of the loved one. This is a Reactive Approach to the

Most people find it easier to plan well in advance, and many find making a move much easier prior to any health or physical concerns clouding the process. This is taking a Proactive Approach! Fortunately, we can help families reduce or eliminate the stress by creating a Real Estate Plan.

A Real Estate Plan begins with a simple Strategy Session to discuss your family's goals.

*Please consult a trusted Tax Advisor regarding any tax considerations.

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Why Trust Strategic Realty Planners?

Do you already know a Real Estate Agent? The answer for most people is Yes. Often there is a family member or close friend who has a real estate license, or even someone you have used in the past.

What we often see is people focusing on the current need to buy or sell their home, and missing out on how the purchase or sale fits into their long-term real estate goals and reacting later in life.

As a Keller Williams (KW) Real Estate planner, our approach to real estate is a bit different. While a Real Estate Agent will focus on the finishing the current transaction a Real Estate Planner helps ensure your current purchase or sale and future decisions you make throughout your lifetime help to achieve your long-term real estate goals.

You will be amazed how a conversation with a KW Certified Real Estate Planner can effect your ability to Build, Protect and Transfer Wealth through real estate.