1031 Tax-Free Exchanges

The federal government allows investment property which has grown in value to be exchanged for other investment property without paying any capital gains tax at the time of the exchange. It is known as a "1031" exchange. The rules are strict and somewhat complicated, so consultation with your tax professional is a must. However, if done properly, it can:

1) Allow you to exchange fully depreciated property for new property that can then be depreciated, while deferring any capital gains tax into the future. If you have held property for over 10 years, it may be time to look at your tax strategy.

2) Leverage the equity in current property into several new properties, increasing your net worth, income, and depreciation deductions.

3) Move your holdings from one location to another, or diversify your holdings into several cities, without having to pay capital gains now on the sale of your curent property.

4) Switch from one type of investment property into another, such as from apartment buildings to shopping centers, or from ordinary apartments to vacation rental property, while preserving the equity you have built up.

Basically, the exchange is done through a "qualified intermediary", who holds the funds from the sale of the current properties in escrow to be used to buy the next properties. There is a short time limit to complete the purchase of the replacement properties, and numerous conditions to satisfy in order to reap the benefits of the exchange program. This time limit is one reason to select your realtor, your exchange intermediary, and your investment objectives carefully. Bill Swonger has experience in the 1031 exchange, and can help identify investments in New Orleans which might meet your needs.