Selling Property vs. 1031 Exchange

Let the math do the talking in this illustration of the financial advantages of a 1031 Exchange. In the past we have introduced readers to the concept of a 1031 Exchange, highlighting the process of an exchange and several critical timelines to follow.

We now want to help illustrate the power of tax deferral when using a 1031 Exchange for selling your investment real estate property. The adage “a picture is worth a thousand words” may apply here, as you can see in this hypothetical illustration of an investor selling investment property with and without a 1031 Exchange.

Selling Property vs. 1031 Exchange

This formula is provided to help determine approximate gain and any amounts that may be deferred under Internal Revenue Code Section 1031. This is an illustration only; individual situations vary.

Note: Failure to reinvest all your net proceeds and/or replace all your existing debt may result in taxable “boot.” Additional equity (not derived from the replacement property) and/or additional debt can be used to offset the debt, but debt cannot be used to offset equity.

For more information on 1031 Exchanges and how they can benefit investors, download our guide, Tax-Deferred Strategies for Real Estate.