Sale or 1031 Exchange?
Whether an investor owns a property all cash or with leverage, the benefits of tax deferral are significant. The tax dollar saved can be utilized to purchase additional property. The example below shows the significant advantage of exchanging for an investor who sells a $425,000 property that has been fully depreciated and that was debt-free. This assumes the client is subject to a combined federal and state tax bracket of 35%. The investor who executed a property §1031 Tax Deferred Exchange defers the payment of capital gain taxes as well as recapture of depreciation taxes3;
Sale 1031 Exchange
Net Equity (Minus Cost)
$400,000. $400,000.
Taxes (35%)
$150,000. None
Funds to Reinvest
$250,000. $400,000.
If the investor leverages his new property to 70% by putting 30% down, he could purchase properties totaling:
Acquisition Value
$833,000
By doing a §1031 Tax Deferred Exchange, the investor increased his portfolio by $467,000. More than if he sold and subsequently reinvested with after-tax dollars thus creating a better sale for your investor.
Please call me for specific information regarding your possible 1031 Tax Deferred Exchange or Holding Account.
