Game Plan Your Financial Goals with a 1031 Exchange

Posted by Margo McDonnell, CRE, CES® | Thu, Dec 22, 2022

Down the field, finally running that half marathon or planning out your year, a winning strategy depends on how you prepare and use your tools. For your finances, your goals might be to diversify your real estate portfolio, increase your revenue stream, improve your business, retire, or find more time in your day to enjoy life. Make those moves matter! 

For those who own investment property, a 1031 exchange may be the perfect tool to accomplish those goals.  

A “1031 exchange” or “like-kind exchange” is a tax strategy that creates mobility in real property investments held for trade, business or long-term investment. One type of real property—an apartment or office building, rental or investment property, vacant land and other types of property—is swapped for another type defined as “like-kind” under Section 1031 of the Internal Revenue Code. The entire equity, gain and depreciation recapture earned in the first property is transferred to the second property and, without tangible receipt of the gain, the capital gains tax is deferred until the investment is liquidated at a future traditional sale. Only net proceeds are taxed immediately. A 1031 exchange leverages cash flow for greater buying power and frees up cash that would otherwise have immediately paid the full tax liability. 

1031 CORP. will facilitate your exchange by acting as the required, independent Qualified Intermediary, guiding you through time and reporting requirements, structuring your exchange and holding your property, valuable assets and funds securely and confidently. 1031 CORP. will help turn those goals into wins!   

So, what can you accomplish with a 1031 exchange?   

Diversify your investment property portfolio 

One of the great benefits of 1031 is the ability to diversify your investment properties to better fit your needs while creating a well-balanced real estate portfolio. Whether you wish to diversify the specific type of property or their geographic locations, 1031 can help you accomplish this goal. 

Build wealth, maximize your buying power, and increase cash flow 

Already planning on a purchase? Use Section 1031 to exchange your investment properties for replacement property with a greater return on investment. The money saved from capital gains in an exchange can become a larger down payment, making your purchase go farther toward a larger investment. Or, use the bonus funds to improve the replacement property. Whether the property is newer, has more units, is closer to the water, or otherwise more attractive, exchange up and make use of the additional cash flow. 

Expand your business or relocate facilities 

Whether your current facilities are too big, too small or no longer in an ideal location, a 1031 exchange can help you expand or relocate into that new, more desirable replacement property. All of the equity is retained in the new facility because the exchange defers the gain and retains the depreciation recapture of the original property. You can even use a 1031 exchange to split your equity towards multiple locations. 

Retire or exit your business 

If you own a business and are planning to retire, you may also own real estate used by your business. The real estate can be exchanged for other real property. This allows you to convert your business property to investment real estate for retirement and generate a steady cash flow to provide retirement income. 

Retire, move, or acquire a vacation home or new personal residence 

Properties used as a personal residence or vacation home do not qualify for a 1031 exchange because they are not held strictly for business or investment use. However, conditions do apply. Safe harbor conventions and patience can help you to acquire income properties you might want to convert to future personal use, such as a retirement or personal residence in a new town or to acquire a vacation home. If selling your personal residence, certain situations allow you a prorated exclusion up to $250,000 worth of gain if you are single or $500,000 if married filing jointly. In the meantime, use the property for rental income! 

Combine financial tools to accomplish other goals 

Section 1031 limits eligible like-kind property to investment or business-use real property. However, combining an exchange with other financial tools can maximize your investment for other opportunities and goals. 

Use the transferred equity to refinance, giving you access to cash for college tuition for a family member, fix up the new property, or hire more staff for the business. For tangible personal property used in your business, you might be eligible for 80% immediate expensing on the acquisition of new capital assets. This gives you the opportunity to replace equipment, fixtures, and furniture to set yourself up for additional growth in 2023 and beyond. 1031 CORP. and all Qualified Intermediaries cannot give tax or legal advice, so be sure to talk with your tax counsel. 

Reduce stress, simplify your investments, and gain more time to enjoy life 

Anyone who has rental properties knows the time commitment needed to manage and maintain a property. 1031 exchanges complement many investments, like Triple Net Lease (NNN) properties or Delaware Statutory Trust (DST) interests. These passive investment products can help you simplify your financial life, freeing up time for other activities. Your tax or legal counsel can help evaluate these and other investment options. 


The tax deferral benefits of a 1031 exchange are a powerful financial tool for a real estate investor or business owner. Trade up your business or investment property and maximize the benefits of a continuous investment in the like-kind property that best fits your needs and goals. Our 1031 CORP. exchange officers are experts at 1031 exchanges and our attentive, high-quality services can help you accomplish those lofty resolutions in 2023. 


Topics: 1031 CORP., 1031 Exchange Benefits, Live

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