Thanks 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 property held for productive use in a trade or business or for investment, if such property is exchanged solely for 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:

  • An investor has 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 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, 1031 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 1031 exchange process.

Asset Preservation would appreciate the opportunity to work with you on your next 1031 exchange regardless of how simple or complex. Give us a call at 800.282.1031 to open a 1031 exchange. Or Open a 1031 Exchange Online.

We have provided some links below to articles, manuals, forms, tools and other 1031 related information to help you start building your 1031 niche.


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


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


Capital Gain Tax Calculator

45/180 Day Calculator

Handouts You Can Customize for Clients


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