The Moor You Know Episode 5 | 1031 Exchanges

Apr 29, 2024 - Blog, Videos by

Moorhead Law Group’s founding partner, Steve Moorhead, has a new video about 1031 Exchanges. A 1031 Exchange is a special tax break that allows real estate investors to exchange one property for another and use the funds to acquire another investment property, thereby deferring the capital gains tax on net proceeds from the sale of the investment property. Additional reasons for investors to complete exchanges are diversification, consolidation, market change, and estate planning. Steve explains the four key elements to any 1031 Exchange:

  1. Exchange requirement. An exchange must actually occur rather than just be the sale of one property and the purchase of another.
  2. Qualified purchase requirement. The exchange must be of properties held for productive use in a trade or business or for investment.
  3. Like kind properties requirement. This is very broad and allows for the exchange of virtually any type of real estate for any other.
  4. Same taxpayer requirement. The person or entity conveying the property must be the same as the person or entity that acquires the new property.

These exchanges don’t work for every property. They aren’t allowed for property held primarily for sale and not for investment. Whether the property is held for investment depends on the party’s intent as well as the surrounding facts. A fully tax-deferred exchange occurs if the investor acquires a property of equal or greater value and uses the entire net equity from the sale of the property for the acquisition of the new property. If any of the above criteria is not met, the exchange may still be valid; however, the transaction may be at least partially taxable.

The short three minutes you spend watching this video will leave you much better informed about 1031 Exchanges. Next week, we’ll share another new video from Steve relating to 1031 Exchanges, What is a Qualified Intermediary?