1031 exchange property means you defer taxes on capital gain and depreciation.
The purpose of 1031 exchange property or also named "like-kind-exchange" is to defer taxes only. For how long? Those taxes may never come due if you continue to use an exchange for every new buys.
1031 exchange is a tax-deferred transfer of cash received from a sale to other property, that costs at least as much as what you sold the other for. Otherwise, you will have some taxes due for difference.
One hard rule is: find what you want to buy in 180 days from the sale of the first property.
OK. Some tax experts recommend to think twice before going for a 1031 exchange:
What experts say about 1031 exchange.
- If your property would fall under the low 18% tax rate, it might be advisable to simply pay the tax.
- Consider the depreciation on the new property. Assume you are exchanging a $4 million property - with the basis of $1 million - into a $6 million property. The basis now is $1 million from the old property carryover plus the difference between $6 and $4 millions a mere total $3 millions for depreciation, about half of what might have been of use for the phantom
passive loss.
- Consider the cost of the like-kind exchange.
- For partnerships and LLCs with many partners the form of ownership might be severed to realize a 1031 exchange.
- Only a good specialized team can do this complicated transaction.
For more fun and good information consider
Diane Kennedy
the author of "Real Estate Loop-Holes - Secrets of Successful Real Estate Investing"
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