1031 Exchange Advisors
for savvy real estate investors
1031 exchanges are one of the top tax planning strategies real estate investors can use to defer capital gains tax.
And in theory, 1031 exchanges are pretty straightforward. You swap your investment property for a better one, kick the capital gains can down the road, and continue on your merry way.
But sometimes, there are pitfalls that can derail 1031 exchanges, leaving you with a big tax bill and potential problems with the IRS.
A 1031 exchange advisor can help you prevent potential pitfalls and spot new opportunities when you decide to sell one investment property for another.
You might face a snag while closing on your replacement property and risk violating the IRS’ strict timelines for 1031 exchanges.
You might leverage mortgages on your investment properties and be taxed on a liability reduction, even if you don’t actually receive any cash from the transaction.
You might accidentally receive the cash from a sale yourself instead of sending it to a qualified third party.
Make one mistake—and the 1031 status could crumble.
What Is a 1031 Exchange Tax Advisor?
A 1031 exchange tax advisor is a professional who helps you:
- Plan 1031 exchange transactions to defer capital gains tax
- Identify appropriate exchange strategies
- Avoid potential pitfalls
- Build wealth faster with your real estate investments
A 1031 exchange advisor can also help you find suitable replacement properties, enact the right 1031 strategies to help you meet your objectives, and even use your 1031 exchange investments to improve your estate planning strategies.
(If you pass away and your heirs inherit a 1031 exchange property, they won’t be expected to pay the capital gains taxes you deferred. For example, they’ll enjoy a step-up in basis and can sell the property at its market value without paying capital gains.)
How Does a 1031 Exchange Work?
A 1031 exchange is essentially a swap of one investment property for another—done in a way that allows you to defer capital gains earned on the sale of the original property.
Hypothetically, you could simply swap your property for someone else’s without creating a taxable event. But finding someone who wants your property in exchange for theirs at exactly the right time will probably never happen.
In reality, things are a bit more complicated.
Most often, real estate investors participate in what’s known as a delayed exchange. A delayed exchange provides you with time to locate a suitable replacement property and close on it after you’ve sold yours.
In a delayed exchange, you’ll have 45 days from the sale of your property to designate a replacement property. You’ll have 180 days—also from the date of sale—to actually close on that replacement property.
If you fail to adhere to these timelines, the sale of your property will be considered a taxable event.
In real estate, 180 days can go by fast. A 1031 exchange advisor can help you keep all the rules and timelines in mind while helping you stay on track so your transaction doesn’t fail.
Do I Need a 1031 Expert to Manage a 1031 Exchange?
While you don’t technically need a 1031 exchange tax advisor to manage these transactions for you, it’s probably a good idea to have one.
In theory, a 1031 exchange sounds simple. You sell your investment property, have the proceeds deposited with your third party manager, and then let your third party manager know where to send the funds to purchase your like-kind property.
But in reality, these transactions have more moving parts than you might think.
For example, many people fail to consider the role of mortgages in a 1031 exchange. If the replacement property you purchase has a lower mortgage than the loan you held on the original property, that lowered liability will be treated as income to you (even though you haven’t actually received any cash). That decrease in liability is now subject to capital gains.
A 1031 exchange tax advisor can help you eliminate any taxable events you might not foresee and reduce the amount of taxes you are liable to pay.
Plus, there are opportunities for 1031 exchanges that may even exceed your own lifetime. A 1031 expert can help you spot those opportunities and take advantage of them to enhance your legacy and benefit your surviving heirs.
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Five Pine Wealth Management
250 NW Blvd, Suite 111, Coeur d’Alene, ID 83815