1031 Exchange Basics: What Real Estate Investors Should Know Before They Sell

For owners of investment real estate, selling a property can create both an opportunity and an important tax-planning conversation.

I recently attended “1031 Exchange Basics,” an educational webinar presented by Asset Exchange Company, an independent nationwide Qualified Intermediary specializing in 1031 tax-deferred exchanges.

The presentation featured:

Leonard Spoto
Founder & Principal, Asset Exchange Company

Phil Atwan
Sr. Vice President, Greater LA

Adam Nishikawa
Vice President, Western Region

The discussion offered a helpful introduction to one of the planning tools available to qualifying real estate investors: the IRC §1031 like-kind exchange.

What Is a 1031 Exchange?

At a high level, a properly structured 1031 exchange may allow an investor to defer recognition of certain capital gains taxes when selling qualifying investment real estate and acquiring qualifying replacement property.

The important word is structured.

A 1031 exchange involves specific requirements, documentation, timing considerations, and coordination among the investor’s real estate, tax, legal, escrow, and Qualified Intermediary professionals.

Asset Exchange Company serves as the Qualified Intermediary in these transactions, helping coordinate exchange documentation, exchange funds, deadlines, and the mechanics of the exchange process.

Planning Before You Sell Matters

One of the most useful reminders for investors is that a potential 1031 exchange should be considered before the sale of the relinquished property closes.

If you own appreciated investment real estate and are considering selling, having the conversation early can give your CPA, attorney, Qualified Intermediary, and real estate advisor time to help you understand your options and prepare appropriately.

Depending on an investor's circumstances, exchange strategies may include traditional delayed exchanges as well as more complex structures, such as reverse or construction exchanges.

The Bigger Picture

A 1031 exchange is not simply about postponing a tax bill.

For some investors, it can be part of a broader real estate strategy involving portfolio repositioning, diversification, moving from one type of investment property to another, or planning for longer-term investment objectives.

Every investor's situation is different, however, and a 1031 exchange is not appropriate for every transaction.

That is why professional guidance matters.

I appreciated Leonard Spoto, Phil Atwan, Adam Nishikawa, and Asset Exchange Company for providing this educational presentation and helping real estate professionals and investors better understand the fundamentals of the 1031 exchange process.

Source and Attribution: This article was curated from the 1031 Exchange Basics educational presentation by Asset Exchange Company and publicly available educational information provided by Asset Exchange Company. Publication is subject to Asset Exchange Company's review and approval.

Important: This article is for general educational purposes only and is not tax, legal, accounting, or investment advice. Tax laws and individual circumstances vary. Investors considering a 1031 exchange should consult their CPA, tax attorney, Qualified Intermediary, and other appropriate professional advisors before making a decision.