What is a 1031 Exchange?

/What is a 1031 Exchange?
What is a 1031 Exchange?2019-01-22T14:05:54+00:00

what is a 1031 exchangeThanks to IRC Section 1031, a properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. IRC Section 1031 (a)(1) states:

“No gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment, if such real property is exchanged solely for real property of like-kind which is to be held either for productive use in a trade or business or for investment.”

To understand the powerful protection a 1031 exchange offers, consider the following example:

  • Assume an investor has $400,000 in gain and also $400,000 in net proceeds after closing. Assuming an investor with a $400,000 capital gain and incurs a tax liability of approximately $140,000 in combined taxes (depreciation recapture, federal capital gain tax, state capital gain tax, and net investment income tax) when the property is sold. Only $260,000 in net equity remains to reinvest in another property.
  • Assuming a 25% down payment and taking on new financing for the purchase with a 75% loan-to-value ratio, the investor would only be able to purchase a $1,040,000 replacement property.
  • If the same investor chose to exchange, however, he or she would be able to reinvest the entire gross equity of $400,000 in the purchase of $1,600,000 replacement property, assuming the same down payment and loan-to-value ratios.

As the above example demonstrates, tax-deferred exchanges allow investors to defer capital gain taxes as well as facilitate significant portfolio growth and increased return on investment. In order to access the full potential of these benefits, it is crucial to have a comprehensive knowledge of the exchange process and the Section 1031 code. For instance, an accurate understanding of the key term like-kind – often mistakenly thought to mean the same exact types of property – can reveal possibilities that might have been dismissed or overlooked. Asset Preservation, Inc. (API) is your resource to obtain accurate and thorough information about the entire exchange process.

Asset Preservation would appreciate the opportunity to work with you on your next exchange regardless of how simple or complex. Give us a call at 800-282-1031 to Open a 1031 Exchange Online.

To learn more, watch the 30-minute 1031 Exchange Basics recorded webinar below:

If you liked the video, make sure you Subscribe to our YouTube Channel.

Below are some links to articles, manuals, forms, tools, and other 1031 related information.


FAQs 1031 Exchanges

Glossary of 1031 Exchange Terminology

What is a Qualified Intermediary?

The Delayed Exchange

Find a 1031 Exchange Expert in Your Area

Like-Kind Exchange Definition

1031 Exchange Checklist

What is the First Step in a 1031 Exchange?

What is Like-Kind Property?

1031 Exchange Library


Capital Gain Tax Calculator

45/180 Day Calculator


Tax Relief for Victims of Hurricane Irma

Tax Relief for Victims of Hurricane Harvey


Find a 1031 Exchange Expert in Your Area

1031 Exchange Arizona

1031 Exchange California

1031 Exchange California – Los Angeles

1031 Exchange Colorado

1031 Exchange Florida

1031 Exchange Massachusetts

1031 Exchange New York

1031 Exchange Oregon & Washington

1031 Exchange Texas


IRS Form 8824: Like-Kind Exchanges

IRS Form 1065: U.S. Return of Partnership Income

IRS Form 4797: Sale of Business Property

IRS Form 1040, Schedule D: Capital Gains and Losses

CA Form 3840: California Like-Kind Exchanges

IRS Publication 544: Sales and Other Disposition of Assets


Sign Up to Receive 1031 Exchange eNews

Asset Preservation is a member of the Federation of Exchange Accommodators (FEA).


In response to increased activity in many vacation markets, Asset Preservation has created a brand-new Vacation Home Handbook that covers many tax issues related to the ownership and sale of a vacation or second home. This brochure is very comprehensive, contains hyperlinks to key tax code sections and provides useful guidance to property owners, real estate professionals, closers, attorneys and CPAs in resort communities and vacation home marketplaces throughout the United States.