
What is a 1031?
A 1031 Exchange is an incredibly useful tool for any real estate owner, broker or investor to increase net worth of real estate. This type of transaction is designed to put the proceeds of a sale (cost basis and capital gains) of real estate into useful equitable channels instead of paying hefty taxes on capital gains. Often referred to as trading up, using a 1031 exchange allows investors to sell one property and invest in another consecutively that has a higher value. This allows investors to restructure their portfolios and ideally increase both net worth and cash flow while deferring all taxes from the sale. Recent government incentives now allow investors to cash out their cost basis if they defer the capital gains into an opportunity zone investment fund.

How does it work?
The principle of a 1031 exchange is quite simple, for the purposes of planning all you need to know are the basics, when it comes time for execution, we suggest you hire a professional (we can help!). The first step is to sell the investment property and calculate your profits. Next, you perform the 1031 exchange by leveraging the proceeds from the sale into a new property. With the right guidance, you should be able to not only increase your net worth but also your cash flow from what you were getting on the previous investment property. We are going to call that a win win. If the property you trade into is a triple net lease property we will call it a win win win!
1031 Guidelines
1. VALUE: The key to the 1031 is the idea of trading up, you are able to defer these taxes because you are making a larger investment with your gains. Therefore, the value and equity of the properties that you exchange for must be greater or equal to the property that you are relinquishing or selling. Very important as well, you must move all the equity from the property that you sold, if you fail to do so you must pay tax on the amount of gains that you do not reinvest.
