Why consider a 1031 property exchange?
Section 1031 of the IRS Code allows an investor who is selling business or investment real estate to complete a tax-free exchange by purchasing replacement like-kind property. This allows deferral of up to 100% of the taxes otherwise due on the sale.
The IRS defines like-kind as any real property held for business or investment purposes. This includes, and is not limited to, raw land, farmland, rental and commercial properties. Like-kind property cannot include a primary residence. IRS Section 1031 cannot apply to the exchange of stocks or bonds.
Benefits of a 1031 property exchange
- Tax deferral
- Wealth preservation
- Greater income
- Efficient estate planning
Tax on the sale of real estate
Gains on the sale of property are typically taxable at both federal and state levels. The following taxes may be deferred utilizing a 1031 exchange:
These are general taxes and guidelines related to 1031 exchanges. Prospective 1031 investors should consult with their tax advisors before beginning an exchange.
Completing a 1031 property exchange - 4 step process
What is a DST 1031 property exchange?
A Delaware Statutory Trust (DST) holds title to multiple properties and allows an investor to purchase a fractional interest in a high-quality property or portfolio of properties.
For tax purposes, each DST investor is treated as owning an undivided fractional interest in real estate. IRS Revenue Ruling 2004-86 provides guidance on the use of a DST for property ownership.
Benefits of a DST
- Qualifies as a 1031 tax-free exchange
- Passive ownership
- Portfolio diversification
- Tax-advantaged rental income
- Less cost than a whole property purchase
Proven & reliable – America's debt-free investor
AEI is one of America's most experienced managers of commercial property investment opportunities for both cash investment and 1031 property exchanges. Over the past 44 years, AEI has created 137 net leased real estate exchanges for thousands of clients nationwide.
AEI believes that a debt-free approach to commercial property ownership can provide consistent income combined with a high degree of capital protection.