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  • Mike Gratland


THE 1031 Exchange/Tax Deferred Exchanges

Doing a 1031 Exchange allows you to keep your tax dollars and put it down on another property

  • Investment Real Property are the only Properties that qualify for the 1031 Exchange

  • Why would you do a 1031 Exchange? To defer Taxes

What Taxes are deferred?

Capital Gains

• Short Term- 1 Year or less-Profit is taxed as ordinary income

• Long Term- 1 Year or more- 15% Tax Rate for individuals under $400,000 and couples under 450,000 §

State Capital Gain

  • Short Term- 5.04%

  • Long Term -4.45%

Recapture of Depreciation

  • If you have a property to which you have improved, you are taxed at a recapture rate of 25%

3.8% Net Investment Income Tax (Changes Per Location of Property)

  • Began Jan 1st, 2013

  • Will affect “high-earners”

  • Individuals who have an adjusted gross income higher than $200,000

  • Married couples with an adjusted gross income higher than $250,000

* The only other way to defer taxes is death


  • They are talking about increasing the top bracket from 37% to 39.6%

  • Currently, Capital Gains are 15-20% and there is a proposal to increase this to 39.6% analysts say this will affect .3% of the population

  • The Biden Admin has proposed a cap on the amount of gain that can be deferred through a 1031 Exchange at $500,000.

Per National Association of Realtors

  • 12% is the number of transactions that were part of a 1031 exchange from 2016-2019

  • 61% of realtors had a least 1 1031 exchange transaction from 2016-2019

  • Approx. 10-20% of all commercial Real Estate transactions involve a 1031 exchange

  • Eliminating the like-kind exchanges would create a lock-in effect resulting in fewer transactions and price declines

What does not qualify for a 1031 Exchange

Your Personal Use Property

  • If it was never an investment on your taxes it does not qualify for exchange

Stock in Trade Does Not Qualify

  • Flippers do not buy to hold or rent so they do not qualify

  • Developers build to sell, not build to hold so they do not qualify •

Stocks, Bonds, and Notes do Not Qualify

Interest in a Partnership Does Not Qualify

  • You and your friend own a property under an LLC, your friend wants to take the cash for exchange, you want to exchange to another property. Since the LLC owns the title, you must split the ownership on title. Often, people will do a quick claim on property and get their personal name or separate entity on title. •

Property must be in the US

  • Guam, Virgin Islands, and Norther Marina Islands are US

  • The purpose is to help the US economy

  • If you sell the property in another Country, the IRS will never know

  • If the investment property is in another country that is considered a foreign exchange and you must exchange to a property outside the US

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