The Benefits & Drawbacks of a 1031 Exchange

With any real estate transaction, there are advantages and disadvantages. In this article, we are going to look at some of the pros and cons of a 1031 exchange.

Pros of a 1031 Exchange

Here are some of the pros of doing a deferred exchange under section 1031:

• Tax Deferral. When you complete a 1031 exchange, you get to defer your capital gains taxes on the sale of your property.

• Compounding Interest. In a 1031 exchange, you get to defer your taxes and keep that money working for you and compounding interest in a continued investment that will reap benefits over time.

Cons of a 1031 Exchange

If you’re looking to save money on taxes, there really aren’t too many downsides of doing a 1031 exchange. There is one situation in which you may not want to consider a 1031 exchange, however:

• You Don’t Keep Your Proceeds. In order to complete a successful 1031 exchange, you need to move all of your sales proceeds into your replacement property. That means you don’t get to pocket any of these proceeds. If you’re strapped for cash, this can be one downside of a 1031 exchange.

Begin the 1031 Exchange Process

If you’re looking to begin the 1031 exchange process on a property you own, you’ve come to the right place. At CPEC1031, LLC, we have more than two decades of experience working in the1031 exchange industry. We facilitate real estate exchanges for clients throughout the state of Minnesota and across the country. Our intermediaries can help you prepare all of your documents for closing and advise you throughout the process. Contact us today at our Minneapolis office to learn more and set up a time to chat with one of our intermediaries!

• 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

1031 Exchange Advantages vs. Disadvantages

Advantages of a 1031 Exchange

The taxpayer may dispose of property without bringing upon oneself any immediate tax liability. This allows the taxpayer to keep the earning power of the deferred tax dollars working for them in another investment. In effect, this money can be considered an interest-free loan from the IRS. There is no interest paid on the outstanding loan balance and there is no specific due date.

The loan will be abolished upon the death of the taxpayer, which means that the taxpayer's estate never has to repay the loan. The taxpayer who is entitled by law gets a stepped-up basis on the inherited property; that is, their basis is the fair market value of the inherited property at the time of the taxpayer's death. A subsequent sale by the heirs will be taxable only to the extent of the difference between the stepped-up basis and the net sale price.

1031 exchange is highly advantageous to the taxpayer as it enables the taxpayers to sell income, investment or business property and replace with like-kind replacement property without having to pay the capital gain taxes on the transaction. Section 1031 of IRS is the basis of tax-deferred exchanges.

Disadvantages of a 1031 Exchange

The main disadvantage of 1031 exchange is that it offers a reduced basis for depreciation in the replacement property. The tax on the replacement property is calculated on the basis of the purchase price of the replacement property minus the gain, which was deferred on the sale of the relinquished property as a result of the exchange. Thus the taxpayer needs to pay tax also on the deferred gain if he cashes out of his investment.

Minneapolis 1031 Exchange Intermediaries

At CPEC1031, we work with investment real estate owners of all shapes and sizes on their 1031 exchanges. Ultimately, a 1031 exchange allows you to defer capital gains taxes when selling real estate. We make that process as easy as possible for all our clients. Contact us today to learn more about the like-kind exchange process or to get your exchange started. You can find us at our primary office in downtown Minneapolis, or at one of our satellite offices located across the United States.

• 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.

© 2019 Copyright Jeffrey R. Peterson All Rights Reserved

Pros & Cons of a 1031 Exchange

1031 exchanges offer a great vehicle for deferring capital gains taxes – but they’re not for everyone. Just like any other real estate decision, you should carefully weigh the pros and cons to see if a 1031 exchange is the right option for you. In this article, we are going to lay out some of the pros and cons of a 1031 exchange of real estate.

Pro: Tax Deferral

The number one benefit of a 1031 exchange is that it allows you to defer your capital gains taxes when you sell real estate.

Con: You Don’t Get to Keep Your Proceeds

In any 1031 exchange, you need to move your net proceeds into a new (bigger and better) replacement property. That means you do not get to pocket any of the proceeds from the sale. This may be an issue for taxpayers who are in need of liquid assets.

Pro: Greater Investment in the Long-run

Even though you aren’t able to pocket your sales proceeds, the amount of money you save in tax deferral, as well as the money that will compound in your continued investment make for a greater investment in the long-run.

Real Estate Like-Kind Exchanges

At CPEC1031 we work with clients all over the state of Minnesota, as well as across the country, on their 1031 exchanges of real estate. Our qualified intermediaries have twenty years of experience and can help you with your 1031 exchange documents and answer all of your questions. Reach out to us today if you want to learn more about the benefits of the 1031 exchange, or to start your real property exchange. Our main office is in downtown Minneapolis.

• 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.

© 2018 Copyright Jeffrey R. Peterson All Rights Reserved