Where did 1031 come from, and what does it really mean?
Basically, 1031 is the number assigned to the Internal Revenue Code section that deals with tax-deferred exchanges.
Has this been available very long?
Yes. It goes as far back as the 1920s. Changes have been made and the U.S. Department of the Treasury has formally clarified many aspects of this code. These clarifications have now made exchanges very popular.
What is the biggest advantage of doing a 1031 exchange?
By postponing the taxes due, you have more money in hand to invest in another property. In effect, you receive an interest-free loan from the government for the amount you would have paid in taxes. It is a wonderful estate builder indeed.
Now that the capital gains tax has been reduced, does it still pay to do a 1031 exchange?
You bet! The federal government will tax 15 percent of your gains (or more) and some states take an additional tax bite. With a 1031 exchange, you defer those taxes.
How can I know if I have qualifying property to exchange?
Generally, any property held for investment or used in trade or business qualifies. However, you would have to present a specific question on a specific piece of property in order for an accommodator to make an accurate determination.
Can I add money to the exchange and acquire an even more expensive piece of property than I am giving up?
Absolutely. This is called “trading up,” and it’s a very popular practice.
Who can I contact to learn more about 1031 exchanges?
A wonderful member of our personal financial team, Ann Cottrell. Ann works for WaMu (Washington Mutual) and can be contacted at (888) 414-1031 or via email at ann.cottrell@wamu.net.
