Property Exchange: How the 1031 Works for You

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ANSWER A FEW SIMPLE QUESTIONS AND GET CONNECTED WITH A 1031 ADVISOR TODAY

What is a 1031 Property Exchange?

A 1031 exchange is a process through which you can swap your property for another property (or properties) and avoid capital gains taxes. This process is outlined in Section 1031 of the US Internal Revenue Code.

There are three stages to a 1031 exchange.

BEFORE YOU START: FIND A QUALIFIED INTERMEDIARY

Before you relinquish your property, you will need to identify a Qualified Intermediary for your 1031 exchange. You cannot accept payment for the sale yourself, otherwise it counts as a taxable event.

RELINQUISHING YOUR PROPERTY: YOU'RE ON THE CLOCK

Once you relinquish your property, you're on the clock. Proceeds from the sale must be transferred to your Qualified Intermediary, and you now have 45 days to identify a replacement property (or properties).

ACQUIRING A REPLACEMENT PROPERTY: CLOSING THE DEAL

Your replacement property must be acquired within 180 days of selling your property.

1031 Exchange Process

PROPERTY EXCHANGE FAQS

How long do you have to hold a 1031 exchange property?

The IRS does not specify a particular length of time for which you must hold a property before utilizing it in a 1031 exchange. Rather, the IRS will look to your intent in purchasing the property.

A property does not qualify for a 1031 exchange if you are only purchasing the property in order to resell it at a later date. Remember Rule #1: a property must be held for business use, productive use in trade or investment. Resale does not meet that requirement.

While the IRS may consider the length of time you’ve held the property, that is not the sole (or even the most important) factor in determining if a property is eligible for a 1031 exchange.

Can I use a 1031 exchange for my primary residence?

Generally speaking, no. A primary residence doesn’t qualify for a 1031 exchange. The exception to this is if your primary residence is also utilized as a business.

For example, if part of your home is set aside as a rental property. In this scenario, the portion of your home utilized as a rental is eligible for a 1031 exchange, while the section of your property that is not (your living area) is not.

How many times can you do a 1031 exchange?

There is no limit to how many times you can do a 1031 exchange.

3 Rules of a 1031 Property Exchange

RULE 1: PROPERTY MUST BE LIKE-KIND

The property you’re selling and the property you acquire must be like-kind. In other words, they must both be held for business use, productive use in trade, or investment.

If you’re selling farmland and purchasing an apartment building, that’s perfectly fine as long as both are held for business.

But if you’re selling raw land to a developer in order to help pay for a vacation home, that doesn’t cut it. The properties are not both held for business, trade or investment purposes, so they differ in kind.

RULE 2: EQUITY AND DEBT MUST BE REINVESTED

To avoid capital gains taxes, the value of your newly acquired property must be equal to or of greater than the value of the property you’re selling.

Let’s say you’re selling property for $100,000, but the new property you’re buying is only worth $90,000. That leaves you with $10,000, which is called the boot. And the boot is subject to capital gains tax (which can be as high as 35%).

RULE 3: TITLES MUST BE HELD BY THE SAME OWNER

Ownership records for both properties must be in the same name. This can be your personal name, or it can be the name of a pass-through entity, such as an LLC or Delaware Statutory Trust.

What Qualifies for a 1031 Property Exchange?

1031 exchanges can be used for a wide variety of asset types as long as they are like-kind. In fact, you can use a 1031 exchange to acquire multiple properties or even a portion of a larger real estate investment portfolio. 1031 exchanges are one of the most versatile methods of real estate investing.

CAN I USE A 1031 PROPERTY EXCHANGE FOR...

Yes
No
Purchasing a Business
no
Buying Raw Land
no
Construction Upgrades
no
Buying Investment Property
no
Stocks and Bonds
no
Purchasing a Second Home
no
Buying a Primary Residence
no
Partnership Shares
no

Why 1031Gateway?

Because we work with the best advisors in the industry.

The 1031 experts in our advisor network never take you or your investments for granted. We pride ourselves on finding advisors who want real, lasting personal relationships with their clients. Advisors who understand that you are not simply a commission fee that helps pay their own mortgage.

We rigorously review our advisors to ensure that they use extensive due diligence protocols to assess all of the properties and investments they recommend.

Our trusted advisors specialize in recession-resilient investments, the kind of diversified portfolios of essential businesses that weathered the Great Recession and have continued to provide projected goals throughout the pandemic.

No matter how much you have to invest and no matter where you’re at in your 1031 exchange journey, when you work with us, we guarantee that we put you in good hands.

Already on the Clock?

If you have already sold your property as part of a 1031 exchange, you have only 45 days in which to identify qualified replacement properties. Answer a few simple questions and we will connect you with a 1031 exchange advisor who can help you find the right investment for you before you miss your deadline.

On average, advisors within our network contact investors within two business days. Our trusted advisors have access to diversified DST portfolios, shares of which can be closed on in as few as 1-3 days.

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Property Exchange Examples

Our advisor network evaluates thousands of potential investment properties from the largest sponsors in the industry.

All properties below are currently closed and are not available for investment.

Fort Myers Multifamily

Fort Myers Multifamily

Inland

The offering is a Class B Multifamily property in Fort Myers, Florida. Built in 1988, with a second phase completed in 1997, the property is a m…

Loan-to-Value 53.74%
Year 1 Cash Flow 4.60%
Asheville Exchange

Asheville Exchange

PASSCO

The offering will purchase a Class A multifamily complex in Asheville, North Carolina. Developed in 2018, the 312-unit property has high-quality…

Loan-to-Value 56.44%
Year 1 Cash Flow 5.10%
Lakeside at Arbor Place

Lakeside at Arbor Place

ExchangeRight

This offering from ExchangeRight contains a single Class-B multifamily complex in Douglasville, Georgia.  The sponsor intends to finish pre…

Loan-to-Value 49.47%
Year 1 Cash Flow 6.98%
Bellemeade Farms Apartments

Bellemeade Farms Apartments

Capital Square Realty Advisors

The twelve apartment buildings that make up the Bellemeade Farms complex sits on over fifteen acres and makes up over 305,000 rentable Sq. Ft. D…

Loan-to-Value 57.07%
Year 1 Cash Flow 5.40%
BR Jefferson Place

BR Jefferson Place

Bluerock

Jefferson Place is a recently built garden style apartment in the Frederick country submarket of the Washington Metro area. Built in 2017, the p…

Loan-to-Value 58.24%
Year 1 Cash Flow 5.25%