1031 Exchange CPA

Using 1031 Exchanges to Defer or Eliminate Taxes

Having the right 1031 Exchange CPA can distinguish between a successful and a failed tax strategy. While the 1031 Exchange is managed by a financial intermediary (and handled by an attorney), tracking the financial impact of deferred taxation, stepped-up basis, and other tax strategies is critical to maximizing the value of this exchange.

A Real Estate CPA that Knows 1031 Exchanges

Financial and Tax Benefits for Real Estate 1031 Exchanges

Many successful real estate investors switch their properties over the course of their careers. You owe taxes on the profits or capital gains when you buy and sell a property. With a 1031 Exchange, you can defer the taxes because the tax law treats it as an “exchange” instead of a sale by using an intermediary. After recent tax reforms, including the Tax Cuts and Jobs Act, many tax tricks were removed, but the 1031 Exchange for residential and commercial real estate remained.

You still owe them when you defer your taxes, but you can continue making profits on that investable money. Additionally, if you hold the properties your entire life, you can actually avoid the taxes entirely. When properties leave your estate and move to your heirs at your death, they get a “stepped-up basis” at whatever the property value was at the time of your death. Your entire lifetime of capital gains can be avoided, and your heirs can sell the property without capital gains taxes. A knowledge 1031 Exchange CPA will ensure you understand how to handle property transfers to avoid losing out on this advantage.

There are many tricks and caveats to this tax code. You need to buy and sell within certain time frames and identify the properties within certain other time frames. The legal portion must be handled correctly via a third-party intermediary. We can help you find a qualified intermediary, structure your real estate deals, and maximize the tax benefits. If you have a low taxable income because of your status as a real estate professional or materially participating short-term rentals, we may help you structure a partial exchange, where we intentionally create a “boot” to create some taxable income to be offset. If you are a foreign real estate investor, FIRPTA will apply except in narrow circumstances and may require additional planning to get the tax benefits of the 1031 Exchange.

Real Estate and 1031 Exchange CPAs know the importance of understanding the real estate rules and regulations and how best to make them work for your financial situation. Bette Hochberger is a CPA, a former real estate agent, and a real estate investor, helping her understand the challenges facing real estate investors.