Why 1031 Exchange?
Property that is sold or transferred for gain can be subject to taxation. A properly-executed exchange offers investors the opportunity to hold onto their equity without being subject to heavy capital gains taxes.
A 1031 exchange provides an investor with the opportunity to diversify his or her investments regionally and characteristically. An apartment building in Los Angeles, for example, can be exchanged for an investment condo in Portland, Oregon and a small shopping strip-mall in New York, New York.
A common challenge among family members who inherit a large piece of real estate is agreeing on what to do with the property over time. A 1031 exchange provides family members with the opportunity to acquire several properties in exchange for one large property enabling each family member to realize his or her individual investment objective
Understanding the 1031 Exchange Process.
As per IRC §1031, a valid property exchange is the selling of an investment property with the intention of reinvesting the profits into a new property thus deferring capital gains taxes. These transactions allow investors to continue investing in other properties without losing their investment equity to taxes. If you exchange investment property exclusively for "like-kind" investment property, there is no immediate tax liability thereby making the exchange a desirable option for investors eager to keep the property's equity for re-investment.