7 Ways to Upgrade Your Real Estate Game With a 1031 Exchange
By Austin Bowlin, CPA, Partner at Real Estate Transition Solutions
Owning investment real estate can be an effective way to build wealth and create financial security. Done properly, it can even generate stable, predictable income without significant management responsibility. However, often property owners need to rebalance their investments to achieve their objectives.
Selling investment real estate to acquire different properties better suited to meet an investor’s objectives sounds like a great idea until the taxes due upon the sale are considered. Unfortunately, the tax rate applied to sales proceeds can be as high as 42.1% at the Federal level, plus state income tax of up to 13.3%. However, one way to reposition real estate investments without taking a hefty haircut due to taxes is the strategic use of a 1031 Exchange. By performing a 1031 Exchange, property owners can sell investment property without paying capital gains tax or depreciation recapture tax, provided the sales proceeds are reinvested into “like-kind” investment real estate of equal or greater value and the conditions of the IRS tax code are followed.