Important Considerations
  • Your exchange funds are never commingled with the funds of other exchangors. A separate, FDIC insured bank account is opened to hold your exchange proceeds during the exchange period.
Make the most of your equity position.
What is a 1031 exchange
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Simply put, a §1031 tax deferred exchange allows you to sell a property you currently own and purchase one or more new properties without having to incur income taxes today as long as you adhere to certain requirements. The “1031” part of the name comes from the part of the Internal Revenue Code that governs these transactions.

An exchange transaction makes sense when two conditions are present:

1st, you have real property that has the potential to result in a big tax bill if you were to sell it outright. Assuming you have held real property for over one year and your basis in the property (your acquisition price…typically what you paid for it) is substantially less than the current fair market value, you will be subject to capital gains tax. Currently, California residents face combined federal and state taxes of approximately 33%. If you have little or no potential gain in a property (sale price – selling expenses – basis = 0) there is no reason to enter into an exchange transaction.

2nd, you want to retain an interest in real property that is held for investment or used in a trade or business. If you want to get out of real estate and convert your equity to cash, a new personal residence, or anything other than real property held for investment or used in a trade or business, there is no reason to enter into an exchange transaction as these types of property do not qualify for §1031 treatment .