What Are 1031 Exchanges & How Are They Changing?
In December 2017, The Tax Cuts and Jobs Act, proposed by President Trump and his staff, came to fruition after approval by the House and the Senate. This bill changed many tax scenarios for both individuals and corporations.
Before we enter into the specific changes within the tax codes that effect 1031 exchanges, it is important to explain exactly what they are. 1031 exchanges are named after the Section 1031 of the USA’s Internal Revenue Code. This section covers the ability to avoid paying capital gains when one sells an investment property and then reinvests those gains into another property of like-kind, greater, or equal value within a certain amount of time. 1031s are also referred to as like-kind exchanges, tax-deferred exchanges, and Starker exchanges.
How Nordlund Associates Applies 1031 Exchanges
“We recently represented a property owner of commercial office space where we secured a buyer for their office property and with the 1031 exchange laws applied the equity into a less management intensive retail investment by acquiring a property anchored by long term Triple Net tenant Walgreens. Thus foregoing capital gains/income taxes on the disposition sale and acquiring a passive income property.”
– Kevin Olson, Senior Associate
To further substantiate this example and help explain 1031 exchanges, we’ve compiled a list of must-read articles that cover 1031 exchanges and how exactly they changed due to the implementation of the new tax laws on January 1st, 2018.
1) How New Tax Laws Effect Commercial Real Estate
BisNow covers 7 specific ways the new tax laws effect the commercial real estate industry, specifically in regards to: like-kind exchanges, business interest deductions, interest tax breaks, income tax deduction, corporate tax rates, individual tax rates, and estate tax exemptions. Read More
2) How New Tax Laws Effect Real Estate Owners
Asset Preservation Incorporated illustrates how 1031 exchanges change with the new tax laws for primary residence homeowners and investment property owners with specific references to changes within the tax codes. Read More
3) New Restrictions to 1031 Exchanges
This source covers specific articles and dates for the newly implemented restrictions regarding like-kind exchanges. For example, they cite 2026 as a pivotal year for when the “bonus depreciation provisions completely expire”. Read More
4) The Legislative Moves Effecting 1031 Exchanges
This article highlights the specific elements that went into The Tax Cuts and Jobs Act through the House and Senate Proposals. It also provides a detailed video regarding ‘Who can and cannot act as a qualified intermediary in a 1031 exchange’. The bill was officially signed into law December 22nd, 2017 and took effect starting in 2018. Read More
5) Comprehensive Resource for 1031 Exchanges
1031 Corp. provides a complete list of all updates regarding 1031 exchanges. Their comprehensive list goes through many topics, including: personal property exchanges, equipment manufacturers, farmers, like-kind exchanges, CRE tax incentives, and political/ legislative updates. Read More
6) New Tax Bill Maintains 1031 Exchanges for Real Estate
1031 exchanges are important for commercial real estate investors, and some worried the provision in federal tax law for real estate used in a business or as investment was in peril in the last moments of finalizing The Tax Cuts and Jobs Act. Fortunately, 1031 exchanges for real estate were preserved, and investors can still maximize the size of their capital gains by leveraging property improvements, increased occupancy, and higher rents. Read More
7) Like-Kind Exchange Opportunities with the New Tax Laws
Lexology goes through detailed examples of opportunities presented with the new tax laws for property owners and investors. Read More