NAR Library & Archives has already done the research for you. References (formerly Field Guides) offer links to articles, eBooks, websites, statistics, and more to provide a comprehensive overview of perspectives. EBSCO articles (E) are available only to NAR members and require the member's nar.realtor login.
1031 Exchanges: The Basics
What is a 1031 Exchange? Know the Rules (Investopedia, Apr. 19, 2024)
1031 Like-Kind exchanges, often used to “trade” one real estate property to defer capital gains taxes, have many rules. With many moving parts, there are special rules for depreciable properties, a 45-day rule, a 180-day rule, a reverse exchange and various other rules for second properties, vacation homes etc.
What is a 1031 Exchange? A Guide to the Basics, Rules & What to Know (Nerd Wallet, Feb. 28, 2024)
“In effect, you can change the form of your investment without (as the IRS sees it) cashing out or recognizing a capital gain. That allows your investment to continue to grow tax-deferred. There’s no limit on how frequently you can do a 1031 exchange. You can roll over the gain from one piece of investment real estate to another and another and another.”
1031 Exchange 101 for Real Estate Investors (Trout CPA, Feb. 28, 2024)
A real estate investor considering a 1031 exchange needs to keep in mind that the taxable gain is only deferred, not eliminated. The investor can continue to defer the gain into new properties by using a 1031 exchange each time they replace the property. However, if the investor ever wants to cash out by selling the property without a 1031 exchange, they will have to pay the tax on the gain at that time. If the gain has been deferred for many years into multiple properties, the tax basis could be very low due to depreciation while the value has increased over time. The amount of the gain and the resulting tax could be very substantial.
What Is a Like-Kind Exchange? (SmartAsset, Feb. 15, 2024)
The deferred exchange may be the most common. The seller sells the property and has 45 days to identify the property that will be exchanged for it. Then, the seller has 180 days to complete the sale. An exchange facility is often used to facilitate the deferred exchange to be sure it doesn’t become a taxable event.
Is a 1031 Real Estate Exchange Right for You? (Bessemer Trust, Feb. 6, 2024)
What makes 1031 exchanges potentially useful is that they may allow you to defer the payment of any capital gains tax normally due from a sale. Some investors may wait until they are in a lower tax bracket before paying capital gains taxes due upon a sale.
Rules, Forms, & Guidelines From the IRS
The following links provide instructions and tips for IRS tax forms relating to 1031 Like-Kind Exchanges.
Like-Kind Exchanges – Real Estate Tax Tips (United States Internal Revenue Service)
What is IRS Form 8824: Like-Kind Exchange (TurboTax)
About Form 8824, Like-Kind Exchanges (United States Internal Revenue Service)
1031 Exchanges for REALTORS®
Maximizing Opportunities: How 1031 Exchanges Benefit Real Estate (Sparks1031, Jun. 29, 2024)
By specializing in 1031 Exchanges, agents can attract a diverse clientele of sophisticated investors seeking tax-deferral strategies. These clients often have substantial real estate portfolios and are looking for agents with expertise in navigating the complexities of exchange transactions. Establishing oneself as a knowledgeable advisor in this niche market can lead to long-term relationships and referrals.
1031 Exchanges: Common Mistakes to Avoid (Collin County Area REALTORS®, May 31, 2024)
Proper documentation is crucial for a 1031 exchange. Failing to have and maintain accurate records or submitting incomplete documentation can result in the disqualification of the exchange.
1031 Exchange Resources for Realtors and Brokers (Equity Exchange, Feb. 6, 2024)
Being knowledgeable about 1031 exchanges not only enhances your reputation with clients but can also lead to increased referrals from satisfied clients. Proactively identifying opportunities for clients to benefit from 1031 exchanges demonstrates your expertise and commitment to their financial success.
Find Opportunities for 1031 Exchanges in Today’s Market (REALTOR® Magazine, May 24, 2023)
“Reading news reports about the state of the real estate market in the U.S., investors might well decide to wait out the market turmoil, particularly as it relates to pondering financing options. For investors with cash and a long-term outlook, though, this may be an optimal time to use the Sec. 1031 tax-deferred exchange to reposition their portfolio.”
Delaware Statutory Trusts (DSTs)
Using a Delaware Statutory Trust (DST) in a 1031 Exchange (The Law Offices of Joseph A. Dipiazza, LLC, Jul. 12, 2024)
A 1031 Exchange is a powerful tax-deferral strategy for real estate investors, allowing them to defer capital gains taxes by reinvesting the proceeds from the sale of one property into another like-kind property. However, the process comes with strict deadlines, including identifying a replacement property within 45 days of the sale. For many investors, meeting this deadline can be challenging. This is where a Delaware Statutory Trust (DST) can be an invaluable tool.
What is a DST? The Benefits of Delaware Statutory Trusts (Origin Investments, May 21, 2024)
Delaware Statutory Trust, or DST, investments allow owners of real estate investments to pool their capital. Then, they exchange it for institutional assets with professional management. For example, an investor owns a property worth $500,000. By employing a 1031 exchange, they can convert that ownership to another property worth $500,000. But by employing a DST, they can roll their investment into a property or properties worth much more. Even better, the DST provides a passive ownership structure.
Understanding the Delaware Statutory Trust Full-Cycle Event (Forbes, Aug. 22, 2023)
“For DST investments, the term “full cycle” refers to the complete life cycle of a DST investment, from when the real estate asset was initially acquired all the way through its ultimate disposition or sale. This life cycle begins with the acquisition of the underlying real estate assets by the DST sponsor company, followed by the offering of beneficial interests within the DST to investors seeking a 1031 exchange strategy.”
Websites
Guide to 1031 Exchanges: Basics, Resources & Intermediaries (BiggerPockets.com)—Quick overview of how 1031 exchanges work, with links to recommended resources and a list of qualified intermediaries.
Federation of Exchange Accomodators (FEA)—Professional organization for exchange specialists. Includes directory of exchange companies & specialists around the U.S.
eBooks & Other Resources
How to Do a 1031 Exchange of Real Estate (eBook)
How to Invest in Real Estate And Pay Little or No Taxes: Use Tax Smart Loopholes to Boost Your Profits By 40% (eBook)
The Tax-Free Exchange Loophole: How Real Estate Investors Can Profit from the 1031 Exchange (eBook)
Books, Videos, Research Reports & More
As a member benefit, the following resources and more are available for loan through the NAR Library. Items will be mailed directly to you or made available for pickup at the REALTOR® Building in Chicago.
Building Wealth Through 1031 Exchanges (Exchange Facilitator, LLC, 2006)
1031 Exchanges: How They Work (Professional Exchange Accommodators, LLC, 2005)
The Tax-Free Exchange Loophole (Wiley, 2005)
Have an idea for a real estate topic? Send us your suggestions.
The inclusion of links on this page does not imply endorsement by the National Association of REALTORS®. NAR makes no representations about whether the content of any external sites which may be linked in this page complies with state or federal laws or regulations or with applicable NAR policies. These links are provided for your convenience only and you rely on them at your own risk.
