1031 Tax Deferred Exchange
Unknown to many real estate investors, some Alternative Investments are also available for 1031 tax-deferred exchange, which give investors the ability to trade up into high quality, management free replacement property.
A 1031 Exchange gets its name from section 1031 of the IRS tax code. This code section allows property owners to sell one or more of their investment properties, exchanging them for a “like kind” property of equal or greater value without paying capital gains tax or tax on the recapture of depreciation as a result of the sale of the investment property.
Years ago, the IRS released Revenue Procedures that allow real estate investors to safely realize the power of combining a 1031 tax deferred exchange with a Delaware Statutory Trust (DST) or a Tenants-In-Common (TIC) investment. A 1031 - DST or TIC syndication presents the opportunity for an individual to join together with other high-net worth investors to own institutional quality real estate and defer the capital gains tax on the sale of their investment property.
By deferring capital gains tax and depreciation recapture into and out of the investment, you can thereby preserve significant wealth in your estate. In addition to the income earned by the investors, depreciation can shelter as much as 50% to 60% of the cash-flow rental income from income taxation. By deferring payment of taxes, the investor retains capital longer to pursue personal income or investment goals.