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.

There are many variations of passages of Lorem Ipsum available, but the majority have suffered alteration in some form, by injected humour, or randomised words which don't look even slightly believable. If you are going to use a passage of Lorem Ipsum, you need to be sure there isn't anything embarrassing hidden in the middle of text. All the Lorem Ipsum generators on the Internet tend to repeat predefined chunks as necessary, making this the first true generator on the Internet. It uses a dictionary of over 200 Latin words, combined with a handful of model sentence structures, to generate Lorem Ipsum which looks reasonable.

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.

Ready to talk to someone?

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.

SCHEDULE A CALL

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only. Securities offered through Arkadios Capital, member FINRA/SIPC. Advisory Services offered through Arkadios Wealth. Perch Wealth and Arkadios are not affiliated through any ownership.

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.