To 1031 or not to 1031... that really is the question

by Maura Snabes, Esq., CES, NTP

Yes—I just turned a 1031 Exchange into a verb. But in all seriousness, it’s a question that comes up often: Should I do a 1031 exchange?

While the answer depends on each situation, here are some practical considerations to help guide the decision.

Why consider a 1031 Exchange?
• Tax deferral: The most common reason—deferring capital gains taxes.
• Portfolio strategy: Diversify, consolidate, or shift property types.
• Income potential: Move from non-income-producing property to one with steady cash flow.
• Trade up: Reinvest into a higher-value property when timing makes sense.
• Relocation: Adjust investments based on market conditions, geography, or personal preference.
• Long-term planning: Continued exchanges may allow for a stepped-up basis for heirs (consult your     tax advisor).

When a 1031 might not make sense:
• Basis reset: Purchasing outside of a 1031 gives you a fresh basis, which could reduce future capital       gains.
• Timing constraints: Strict deadlines for identifying and acquiring replacement property after the       closing on the sale of the relinquished property. 
• Use limitations: Properties must be held for investment or business use (qualified use) —not                personal use.
• Asset (Like-Kind) restrictions: Proceeds must go into like-kind real estate—not other asset classes.
• Related party rules: Transactions involving related parties can be limited or disqualified.

At the end of the day, it’s not a one-size-fits-all decision. Understanding both sides helps ensure the strategy aligns with your broader investment, personal and financial goals. If you are interested in learning more about a 1031 Exchange, please reach out to me at MSnabes@corp1031.com 

.