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1031 Exchanges are some of the most common transactions we do at Legacy Commercial Group. These unique types of real estate purchases offer unmatched tax benefits for you and your family and make growing your real estate portfolio simpler over time. However, not every property is suitable for a 1031 Exchange, depending on the value, location, and other factors at play. 

1031 exchange properties must be like-kind, determined by certain characteristics specified by the IRS. While there is no limit to the number of times you can make a 1031 exchange, there are some general guidelines you should follow before setting up the deal for another property. Below are the three elements we consider most crucial when choosing a replacement property for a 1031 exchange offer: 

Fair Market Value

This is an obvious point for some investors, but if you’re not careful, you can pay capital gains taxes unnecessarily on your transaction. The replacement property’s Fair Market Value (FMV) must be equal to or greater than the property you currently own. If it is not, the deal will result in ‘Boot,’ and you will owe taxes on the profits. This eliminates the primary benefit of a 1031 exchange – tax deferment – and can reduce the power of your capital investments for your and your family’s future. 

Debt Of Replacement Property

The FMV is not the only factor the IRS considers when qualifying 1031 exchanges for tax deferment. For example, the running debt of both replacement and relinquished properties must be approximately the same, or you may lose some of your tax benefits. Typically your financial advisor or syndicate will advise you of this. Still, it’s always important to do your due diligence to ensure you’re receiving the most significant tax advantages with your exchange. 

Location of Replacement Property

1031 exchanges are made favorable for real estate investors across the country and are therefore not limited to properties within the same geographic confines. Research properties across the US to find growing markets and ideal locations for the type of commercial real estate you’re looking to purchase. Take advantage of new state laws and developing locales to grow your portfolio in ways you can’t in the current state of your property ownership. 

At Legacy Commercial Group, we help investors find the ideal exchanges to grow their portfolios with unique tax benefits for themselves and their families. 1031 exchanges not only allow you defer taxes but can become a valuable tool for building a financial legacy that your children and grandchildren can benefit from. Legacy helps you build this kind of financial legacy so you can enjoy what’s most important to you in life. 

To learn more about investment and 1031 exchange options for our available properties, contact Legacy Commercial Group today.