What Can You Expect to Gain From a 1031 Exchange?

The biggest and most important question taxpayers ask themselves before doing a 1031 exchange is "what can I expect to gain from this transaction?" That's our question for today's 1031 education article.

Defer Your Capital Gains

The primary benefit that you gain is that you are deferring indefinitely the capital gains and state income tax liabilities that you would ordinarily have if you were recognizing the gains on the sale of property.

1031 says that no gain or loss shall be recognized if you dispose of a property that's been held for a qualified purpose (investment or business purposes), and you acquire a like-kind property that’s also going to be held for investment purposes. The gain for you is that these profits are not taxable in the current year of disposition and may stay deferred indefinitely.

Avoid Unnecessary Taxes

So the big gain is that you don't have to pay taxes unnecessarily upon the sale of your relinquished property and you defer those gains and roll them into your new replacement property, which may never be sold. If it is disposed of, it may be disposed of after your passing, so that your heirs will have that property with a stepped up basis, effectively eliminating the tax perpetually.

• Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved

Determining Gain with Gifted Property

Determining capital gains taxes on property can be especially difficult when the property in question was a gift. In this article we will explain how to determine your gain when you receive a gifted property, and when a 1031 exchange is a good option.

When Your Father Gifts a Property to You

If your father gifts property to you, then you may take a carry-over basis (his basis) in the property received by gift during his lifetime. See IRC Section 1015 (for intervivos gifts made during the grantor's lifetime, Taft v. Bowers, 278 U.S. 470 (1929)) and also IRC Section 1014 (for inheritance for a deceased person).

You may need to find out how low your father’s basis is, because that may be your basis received in the property if it is made during your father's lifetime.

Gain is generally determined by subtracting your basis from the net sale price (amount realized) on the sale.

1031 Like-Kind Exchange

If you want to defer the gain, you may consider doing an IRC Section 1031 like-kind exchange.

In order to qualify for a 1031 exchange, both the property given up (sold) and the new properties received must be held for investment / business or for use in your trade; so you may need to hold the gifted property for one of these qualified purposes for a period of time before exchanging out of it.  

• Start Your 1031 Exchange: If you have questions about gain with gifted property, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved