5 Myths of 1031 Exchanges.

While 1031 exchanges may seem like a secret, their use is widespread, accounting for an estimated 15% of all US commercial real estate transactions annually. That’s $185 billion worth of 1031 exchanges per year!

Despite their prevalence, misconceptions continue to swirl around 1031 exchanges. Don’t let these common myths prevent you from exploring a 1031 exchange. After all, 1031s are one of the cheat codes to building your wealth via real estate!

Myth 1

You can only exchange into the same property type as the one being sold.

Myth! You aren’t required to exchange one property for exactly the same type of property. You can exchange raw land for a rental home, an apartment complex for a shopping center or rental houses for an office building. You can exchange property in different states. You can diversify by exchanging one property into multiple properties, or you can consolidate your portfolio by exchanging multiple properties into a single property. So long as all property is held for business or investment purposes, you have nearly infinite exchange options.

Myth 2

You have to exchange properties with the same individual.

Myth! You can sell to one person or entity and purchase from a completely different person or entity – just like you do in any other real estate transaction.

Myth 3

You have to buy property that costs more than what you are selling.

Myth! You can purchase a replacement property for less than your relinquished property and still receive some 1031 tax benefits. However, if you seek full tax deferral, you will have to purchase property of equal or greater value than the net selling price of your relinquished property.

Myth 4

Why bother? You’ll have to pay the taxes sooner or later.

Myth! If you keep rolling one 1031 exchange into another until your time on Earth is up, you will not only have deferred taxes on your gains each time, but you will have accomplished the seemingly impossible: avoiding taxes altogether. How is this? Because when your properties pass to your kin, they get a step-up in basis, effectively making a lifetime worth of gains invisible to the US Government.

Myth 5

1031 exchanges are complicated and too confusing to be worth it.

Nah! Not with 1031 Specialists as your Qualified Intermediary.

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