Today everyone wants the latest and greatest of everything from homes to cars and electronics. Why not want the same for your real estate portfolio? On this Thankful Thursday, we are grateful for the true diversification of real estate assets a 1031 exchange provides.
Let’s start with the basics. What properties qualify for 1031 tax-deferred treatment under Section 1031 of the Internal Revenue Code? Any real property held for productive use in a trade or business or for investment purposes qualifies for 1031 treatment. More specifically, you aren’t looking at the specific type of real property, rather the nature or character of that property. What this means is, you don’t have to sell a single family rental property and acquire another single family rental property. Instead, you can sell that single family rental property for any type of real property that is held for investment purposes or business use. This is also known as like-kind real property. Some examples include the following:
- Duplex, apartment building, rental house
- Office building, warehouse, shopping center
- Land
- Delaware Statutory Trusts or DSTs
- Tenant-in-Common (TIC) interest
- Conservation easements and utility easements
- Leasehold interest of 30 years, including options
- Cell tower easements and billboard easements
- Oil and gas royalties; mineral interests
- Co-operatives
- Timber rights; water rights; air rights
Another great benefit of 1031 exchanges is you can buy and sell multiple properties and they can be located anywhere in the Unites States, D.C. and select territories. This allows you to expand, relocate and even consolidate your portfolio while maximizing your tax-deferral. Here’s an example: Let’s assume you own a business on the West Coast but want to relocate to the East Coast. By doing a 1031 exchange, you can sell that business use property, defer the capital gains and roll the proceeds into another property to be used for your business or any investment property. With proper planning, you may be able to acquire a single family rental and eventually convert it into a primary residence or second home.
We are grateful for the many benefits a 1031 exchange provides including the ability to diversify, consolidate, expand or even consolidate your real estate portfolio. Our team is glad to discuss what strategies may work best to reach your long and short term goals. Contact our Exchange Team to discuss your particular situation.
