Does it make sense to do a 1031 Exchange?

Here's a simple guide to help you determine if you qualify for a 1031 Exchange and whether it’s the right option for your upcoming real estate transaction:

1. Do you, or your entity, pay U.S. taxes? If yes, then you are eligible for a 1031 Exchange.

2. Is the property you’re selling considered "real property" and has it been held for business or investment purposes? If yes, then the property likely qualifies for a 1031 Exchange.

3. Are you planning to reinvest the full proceeds from the sale into another property for business or investment purposes? If yes, then you qualify for a 1031 Exchange. However, if you plan to use the proceeds for personal use, such as purchasing a second home, the transaction would not qualify.

4. Do you intend to reinvest all or most of the proceeds into a new business or investment property? If yes, then a 1031 Exchange is a good option. But, if you plan to keep most of the proceeds, a 1031 Exchange may not provide much benefit.

5. Have you already sold your property and received the proceeds? If yes, then you no longer qualify for a 1031 Exchange, as the gains have already been recognized and are taxable.

6. Will you be able to identify a potential replacement property within 45 days of the sale? If you’re confident you can meet this deadline, a 1031 Exchange could be a great choice.

7. Can you sell your property and acquire a new one within the 180-day period? If yes, then a 1031 Exchange is definitely worth considering.

Your answers to these questions should help you determine if a 1031 Exchange is suitable for your situation. As always, it’s a good idea to consult with your tax advisors to choose the best strategy for your needs. 1031 Asset Solutions can help guide you through the entire process. Contact us at 844-401-1031.