Tax Deferred Exchanges

Defer Tax Gain into New Replacement Property
1031 TAX DEFERRED EXCHANGES
William E Bryant CPA, CVA & Realtor - Copyright 2016

• Trade of Like-Kind Property for Like-Kind Property
– Real Property Exchanged for other Real Property
• Must be Property Held for Investment in the same Property Class.
– For example, Land can be exchanged for other Land, or exchanged for Rental
Property or Commercial Property, since it’s in the same Class.
– Personal Property for Personal Property
• Antique Car for Antique Car
• Artwork & Collectibles for other Artwork & Collectibles
– What does NOT Qualify?
• Trading Personal Property for Investment Real Property – Mixed Class
• Partnership Interest (considered Personal Property) for Real Property
• Trading your Principal Residence (not considered an Investment Property)
WHAT QUALIFIES FOR A 1031 EXCHANGE

• Tax Consequences of Traditional Sale vs 1031 Exchange
– Traditional Sale of Property – Typical Transaction (See Chart)
• Must pay Federal and State Income Taxes on the Capital Gain.
– Pay higher Tax Rate on Recapture of Depreciation on those Assets.
– Have less Net Cash Proceeds Available to Reinvest in Replacement Property.
– Tax Deferred 1031 Exchange (See Chart)
• No Taxes paid if you “Trade Up” and if no Cash is received.
• Transfer low tax basis into the Replacement Property.
• Defer Large Capital Gain until Final Sale or Include later in a Final Estate.
TAX BENEFITS OF A 1031 EXCHANGE

Disbursement of Cash Proceeds on Typical Sale – Assume No Loan Payoff
EXAMPLE: TAX CONSEQUENCES OF TRADITIONAL SALE

Low Tax Basis
Fair Market Value
Of
Replacement Property
Large Capital…
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Relinquished Replacement
EXAMPLE: TAX DEFERRED 1031 EXCHANGE
Low Tax Basis is Transferred and Large Capital Gain is Deferred into Replacement Property

• Identify a Qualified Intermediary (“QI”) and Closing Agent
and/or Title Company to handle the Transactions.
• Sell the Relinquished Property via the QI – Now the Clock
starts ticking!
• You have 45 Days to identify a Replacement Property.
• You have a total of 180 Days to Close on the Replacement
Property via the QI.
• Review the following Timeline
WHAT STEPS ARE NEEDED IN A 1031 EXCHANGE

Sell Relinquished
Property
45 Days to Identify
180 Days to Close on
TIMELINE FOR A 1031 EXCHANGE TRANSACTION

TAX BASIS OF REPLACEMENT PROPERTY
Tax Basis of Property Relinquished
Plus Expense of Sale
Plus Cash Contributed
Plus Liabilities Assumed
Less Liabilities Relieved
Less Cash Received
Equals Tax Basis
Tax Tip: Tax Basis
equals the FMV of the
less the Deferred Gain

• The Ownership in the Replacement Property must be identical to
the Ownership in the Relinquished Property.
• There is a 2-Year Investment requirement if a related Party is
involved in the Transaction.
• Consider using Tenants in Common (“TIC”) to separate the
Property ownership from a Partnership, then proceed with the
1031 transaction with your share as TIC owner.
• Reverse Exchanges might be a good strategy in certain Market
and/or Unique Opportunity situations.
• UpREITS and other Post-Transaction Strategies are possible.
OTHER CONSIDERATIONS IN A 1031 EXCHANGE

• For more information about 1031 Tax Deferred Strategies:
– Or to work with a Qualified Intermediary
– Or to assist in the Sale/Purchase of the Real Estate
– Or to Consult with a Tax Advisor about your specific situation
• Please contact Bill Bryant at 612-872-9684 or email at:
• Also please visit: for more info.
THANK YOU

Tax Deferred Exchanges

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