The 1031 Exchange Institute

Welcome to The 1031 Exchange Institute™. The 1031 Exchange Institute is your complete online resource for 1031 exchange, 1033 exchange, 1034 exchange, 721 exchange, 453 installment sale and 121 exclusion information.  Information will also be provided regarding Self-Directed IRAs, including Traditional IRAs, ROTH IRAs, SEP-IRAs and SIMPLE IRAs. 

The 1031 Exchange Institute is dedicated to educating and informing real estate investors and their advisors on the benefits of 1031 tax-deferred exchanges and other tax deferred and tax exlcusion strategies so they can make better informed investment decisions.

Defer Capital Gain Taxes Indefinitely  

When To Consider A 1031 Exchange

Real estate investors often inquire as to when they should consider using a 1031 exchange.  I've always said that the short answer is: always.  Always 1031 exchange so that you always defer the payment of your income taxes into the future.  It keeps all of the equity working for the real estate investor so they can concentrate on building their net worth.

Keep on Keep'n On

The best way to take advantage of the 1031 exchange strategy is to continuously structure 1031 exchanges.  It means that the real estate investor continuously 1031 exchanges throughout his or her lifetime.  He or she always defers the payment of their income taxes, which keeps their equity invested and working hard for them.  My personal philosophy is to never ever pay depreciation recapture or capital gain taxes on the sale of my investment real property unless I have a very good reason to do so.

Step-up In Cost Basis

The real estate investor's heirs will receive a stepped up cost basis that will be equal to the fair market value of the real property as of the date of the real estate investors death.  This means that his or her heirs could sell the real property immediately after his or her death without income tax consequences. 

Example

The heir's father purchased investment real estate for $150,000 (cost basis).  The investment real property had a fair market value of $650,000 when the father died.  His son inherited the investment real property, who will receive a step-up in cost basis equal to the fair market value on the date his father died.  The son's cost basis would become $650,000.  The $500,000 in capital gain while the real estate was held by the father is not subject to capital gain income taxes.  If the son were to immediately sell the real property for $650,000 there would be no capital gain income taxes owed by the son.  If the son were to sell the real estate later for $1,000,000 the son would only owe capital gain income taxes on the $350,000 gain.  However, the fair market value of the real property is included in the father’s estate and it may be subject to federal, and possibly state, estate (inheritance) taxes. Investors should always consult with an estate planning specialist for assistance in planning for and minimizing his estate taxes.

 

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