1031 exchange explained

The 1031 Solution

“A Tax Deferral Strategy For Highly Appreciated Real Estate”

Call Us Today at 866-405-1031 www.1031alternatives.net

Accredited Investors OnlySecurities offered through Pacific West Securities, Inc. – Broker Dealer – Member FINRA/SIPC. This material is neither an offer to sell nor the solicitation to purchase any security. Purchases may only be made upon thorough review of risks and merits located within the Private Placement Memorandum or Prospectus. Pictures are not current offerings and are used for illustration purposes only.

If Your Investment Real Estate Is Currently…

• Highly appreciated• Fully depreciated• Management intensive• Under/over diversified• Not providing enough cash flow

Then maybe it is time to consider some options



You Have Several Options To Choose From

You can…• Do nothing• Sell property, pay taxes, and reinvest net equity in standard

investments• Exchange property for like kind real property utilizing an IRS §1031

Exchange thereby deferring taxes• Exchange property for professionally managed real property utilizing

a tenant in common (TIC) §1031 exchange



The 1031 Exchange



1031• A §l031 Exchange is a transaction in which a taxpayer is allowed to exchange one investment property for another thereby deferring the tax consequence of a sale. The transaction is authorized by §1031 of the IRS Code.



What Is A §1031 Exchange?

“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held either for productive use in a trade or business or for investment.”

• §1031 originally adopted into the IRS Code in 1921• Refined over 70-years of case law and further guidance• Final regulations issued by IRS in 1991



History of §1031 Exchange

• Owner of rental homes• Owner of multi-unit apartments• Landowner• Farmer• Business owner selling business w/ real estate• Owner of small retail or industrial property



Who Is A Typical §1031 Investor

Requirements For An Exchange

To defer taxes under IRC §1031, the investor must:

•Acquire like-kind property•Properties must be held for investment or use in business•Property must be of equal or greater value• Acquire equal or greater debt• Not receive cash or other benefits on sale of property (constructive receipt)•Follow strict 45/180 day timeline for exchange



• Like kind property– Rental Houses– Rental Condominiums– Apartment Buildings– Shopping Centers– Warehouses– Office Buildings– Raw or Unimproved Land– 30+ Year Leaseholds– Tenant In Common Interests



What Is Like Kind Property?

• Non like kind property– Personal Residence– Bonds– Securities– REIT Stock– Shares of Stock– Vacation Homes– Interests in Partnerships– Property Outside the US

investor to review, and all the financing would be in place. You simply work with your advisors and then subscribe into the TIC deal that best

meets your goals, objectives and risk tolerance. TIC ownership has given everyday investors a right of entry into an investment vehicle that

has been historically dominated by pension funds, insurance companies, or ultra high net worth individuals.

• The property identification must be delivered to the Qualified Intermediary (QI)

• Identifications must be in writing and signed by the exchanger• Identification must be unambiguous (site specific)• Must be delivered within the 45-day identification period – no

extension for Saturday, Sunday or holiday deadlines



Property Identification Procedures




Exchangers are kept to a strict timeline:• 45-days to identify replacement properties• 180-days (total) to close on at least one of these properties



The Exchange Timeline

Exchange PeriodIdentification

Period

45 Days

180 Days*




The Facts:

•Property Owner (Bob) originally purchased an investment duplex for $250K. •Bob has determined to sell the property for $1M after 5 years. •Bob has existing debt on the property of $125K. •Bob’s basis on the property is $213K after depreciation (based on a 27.5 year straight line schedule)•Bob will pay $70K in transaction costs on the sale



An Example Exchange




Original Property Purchase Price 250,000Improvements valued at 200,000Land valued at 50,000Depreciation on 27.5 year schedule for 5-years - 36,363Basis 213,636Selling Price 1,000,000Gain 786,364Recapture Tax @ 25% 9,090Federal Capital Gains Tax @ 15% 117,954State Tax @ 0-10% (depending on State) – 5 % 39,318 Total Tax Liability $166,362



Tax Calculations

Scenario #1• Sell property, pay the taxes, and

reinvest:Sale Price: $1,000,000Less:Loan: $125,000Trans Costs: $70,000Taxes: $166,362

$638,638



Possible Scenarios

Scenario #2• Exchange property, defer the

taxes, and reinvest:Sale Price: $1,000,000Less:Loan: $125,000Trans Costs: $70,000

$805,000

Scenario #1• If $638K investment receives a

return of 7% annually for 7-years you will have:

$1,024,488



More Possible Scenarios

Scenario #2• If $805K investment receives a

return of 7% annually for 7-years you will have:

$1,292,654

Thank You!For further information or to receive aFREE handbook, please contact us:

1930 Harrison Street, Ste. 603Hollywood, FL 33020

Toll Free . 866.405.1031Fax . 954.874.4501



1031 exchange explained

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