An Alternative to Paying Tax Today – 4/17/2017

The cartoon character Wimpy would say that he’d gladly repay you Tuesday for a hamburger today. Some real estate investors say a similar thing to Uncle Sam to be able to hold on to their proceeds from the sale of an investment and agree to pay the tax later.


The benefit of a 1031 exchange is that it allows the investor to defer the tax due from the sale into the replacement property. This allows more money to be reinvested. In the example shown, the investor has 27% more to invest now by deferring the tax into the future.

The property to be exchanged must be like-kind which means real estate for real estate.   Rental property can be exchanged for other rental or investment property.  Personal-use properties like a first or second home are not eligible for exchanges.

There are some critical dates that restrict the validity of the exchange. The investor must identify the replacement property within 45 days of the sale of the relinquished property. The replacement property must be closed within 180 days of the sale of the relinquished property.

  • The replacement property must be equal to or greater in value, equity and debt than the one being relinquished.
  • All net proceeds must be used in acquiring the replacement property.

There are specific rules involved in constructing a valid tax-deferred exchange. There are three professionals that should be involved: a tax advisor, a real estate professional and a qualified intermediary who will assist in the acquisition and transfer of both the relinquished property and the replacement property. Additional information can be found in IRS Publication 544.

About Gary Thompson ... "Your Utah Realtor!"

Growing up in Utah was all I ever knew, that is until I got to live in many great places, like Nottingham England; New York City; Maui, Hawaii; Denver, Colorado and Albuquerque, New Mexico! And when it came time to finally settle down, I chose Utah again! What a great place to experience the outdoors, be involved in the community and raise a family. I have gotten to know the best neighborhoods, things to do and places to see - all while working on my craft as a professional Realtor® - so if you are looking for a great place and a great experience, I love to put my skills to work for you! Thanks for keeping me in mind! - I'll work hard to be your Utah Realtor!

Posted on April 17, 2017, in Investing in Real Estate, local updates, Real Estate. Bookmark the permalink. Leave a comment.

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