1031 Exchanges

One of the best aspects of real estate investment is the tax advantages. Before I continue, know that I am not an accountant, investment advisor or an attorney; I am a Realtor. And, what I am describing below may not apply to your state or to your specific situation; seek qualified experts.

Section 1031 of the U.S. Internal Revenue Code allows investors to defer capital gains taxes on the exchange of like-kind properties. Section 1031 specifies that if an asset is sold and the proceeds of the sale are then reinvested in a like kind asset, then no gain or loss is recognized, allowing the deferment of capital gains taxes that would otherwise have been due on the sale. Note that conditions and and restrictions apply; seek professional advice before considering a 1031 exchange.

A 1031 exchange is not limited to just rental properties, it also allows you to "exchange" rental properties for land, office buildings, etc. A 1031 one exchange is also an excellent "exit" strategy. For example, over time you acquire a number of properties but you want to retire and not be bothered with the individual properties. Using a 1031 exchange you could sell all the individual properties and purchase a single tenant office building from someone offering (for example) a 20 year "triple net lease". With a triple net lease, the tenant pays all real estate taxes, building insurance, and maintenance and you receive a monthly payment. it is totally passive. Who offers such leases: food chains (McDonalds, Starbucks), the government (Post Offices), and many major companies who need buildings but do not want to tie their money up by purchasing property. The image below illustrates this progression.

Using this approach you never paid the deferred taxes and transformed all the individual rental properties into a totally passive long-term income stream.

If you are considering investing in real estate, call me today. I will save you money, time and risk.

Eric Fernwood
Eric@ISellLVHomes.com
702-358-8884