RENT Magazine Q4 '22

1031 Exchange

A complete 1031 exchange potentially allows you to sell one investment property and buy another without recognizing any taxable gain. You can defer both the capital gain tax on your appreciation and the recapture tax on your depreciation.

Like many tax strategies, the rules and process of completing a 1031 exchange are multifaceted and often changing. A key 1031 exchange mandate centers around the notion of reinvesting proceeds into an equal or higher value “like-kind” property.

More importantly, you can execute this strategy an unlimited number of times over the span of your life, repeatedly kicking a larger and larger tax can down the proverbial road. Be mindful, however, of crucial deadlines when participating in a 1031 exchange as the Internal Revenue Code spells out very specific timeframes for such transactions. While tax-deferred exchanges have existed for over a century, threats from politicians in Washington to severely limit—or do away with them altogether—have become a routine exercise. While the latest legislation didn’t result in changes, 2022 may be a great time to exercise 1031 exchanges before they end up in the crosshairs again. Finally, upon your passing, your heirs get a…

WHAT IS A LIKE- KIND PROPERTY? While like-kind can sound specific, it is quite broadly defined and allows for the exchange of any type of investment/business property for another. For example, an apartment building can be exchanged for a shopping center, single- family rental, raw land, or any combination thereof.


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