FAQs about 1031 Exchanges

Welcome to our FAQs about 1031 Exchanges page!

Here, you'll find answers to some of the most common questions related to 1031 exchanges in California.

As an investor, it's essential to have a solid understanding of this powerful tax-deferral tool and its potential benefits for your real estate portfolio. Our goal is to provide you with valuable information that will help you navigate the complexities of 1031 exchanges and make informed decisions about your investments. Whether you're a seasoned investor or just starting, this resource will empower you to unlock the full potential of your property investments.

Dive in and learn more about the rules, requirements, and advantages of 1031 exchanges. If you need further assistance or have any specific questions, please don't hesitate to contact our team of experts for personalized guidance.

What are the tax benefits of a 1031 exchange?

1031 exchanges allow investors to trade from one real property into a like-kind property while deferring capital gains. Furthermore, a 1031 exchange may allow investors to reset their depreciation schedule and trade into an income-free tax state.

Who qualifies for a 1031 exchange?

Per the IRS, individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may qualify for a 1031 exchange.

When does an investor need to pay taxes in a 1031 exchange?

Only when investors receive part of the proceeds from the sale of a relinquished property – known as boot – are they required to pay capital gains. For example, if an investor sells a property for $1 million and only reinvests $750,000, taking $250,000 in profit, they would be required to pay taxes on the $250,000.

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What qualifies as a like-kind property?

Properties are like-kind so long as they are the same in nature or character; they can differ in grade or quality. Therefore, investors can exchange properties between asset classes, for example, from land to retail. Additionally, fractional ownership, such as interest in a DST or TIC, qualifies for a 1031 exchange.

Can an investor hold the funds between selling and buying a property?

No. If an investor takes hold of the funds at any time, the investor will be responsible for paying capital gains on the asset’s sale. To qualify for an exchange, all proceeds from the sale of the relinquished property must be placed with a qualified intermediary (QI).

Additional Resources

For even more resources and in-depth information on 1031 exchanges, we highly recommend visiting our trusted partner, Perch Wealth, to further enhance your investment knowledge and success.

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We pride ourselves in providing a customized investment strategy to meet your individual needs. If you want to take advantage of the tax benefits from a 1031 exchange, or just learn more, give us call.

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Securities offered through Emerson Equity LLC, member FINRA / SIPC. This is not an offer to buy or sell securities. Securities investing carries an inherent risk of loss of some or all of the principal invested. We are not tax professionals. You should always discuss your investments with a tax professional prior to investing. Securities are sold only in those states where Emerson Equity LLC is registered. Perch Wealth LLC and Emerson Equity LLC are not affiliated. COMPANY and Emerson Equity LLC do not provide legal or tax advice. Securities offered through Emerson Equity LLC Member FINRA / SIPC and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein.

Perch Financial LLC and Emerson Equity LLC do not provide legal or tax advice. Securities offered through Emerson Equity LLC Member FINRA/SIPC and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein. 1031 Risk Disclosure:

There is no guarantee that any strategy will be successful or achieve investment objectives;
Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments;
Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits

No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood, and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward-looking statements are never an assurance of future results.

Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read, and understand all the risks associated with buying private placement securities. Investments are not guaranteed or FDIC insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur.

Risk Disclosure: Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss.

NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by Perch Financial LLC, Emerson Equity LLC, or any affiliate, or partner thereof. Perch Financial LLC does not warrant the accuracy or completeness of the information contained herein.