What is a 1031 exchange

Description:  A summary of a 1031 exchange as it pertains to multi-family syndication

It is a tax code, 1031 of the internal revenue code which provides a strategic method of deferring capital gain on the sale of property.  This is done by completing a 1031 exchange.  In a 1031 exchange the owner will sell an investment property.  The owner will then use the proceeds from the sale of their property to acquire a replacement property, they call it ‘like-kind’ of equal or greater value.  Although the process is relatively straightforward, there are concrete guidelines that MUST be followed to complete a fully tax deferred exchange. 

So the cool thing about this tax law is that it allows a taxpayer to sell an investment property with NO tax liability on any resulting gain, which preserves the sale proceeds for the purchase of another property.  Now that is cool but what many people don’t realize is you can leverage up into an apartment complex, get into a MUCH larger asset.  “like-Kind” asset means ANY type of real property obviously can invest in stock or bonds but if you have a SFR you don’t have to trade or another SFR.  You can go into anything from apartments to vacant land to development projects so that is a very awesome way to get to leverage up. 

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