Why Exchange if I’m Going to Have to Pay Taxes Eventually?

Why Exchange if I’m Going to Have to Pay Taxes Eventually?

We commonly hear… “why bother doing a 1031 exchange if I’m going to have to pay taxes at some point?” This statement is not entirely true. There are two ways that you can do a 1031 exchange and potentially NEVER pay taxes.

1. With careful planning you could convert your 1031 exchange property to your primary home. After renting out a 1031 exchange property, (preferably for at least two years to show intent), you have the option to convert it to your primary residence.

2. If converting your investment property to your primary home does not interest you, there is another way to avoid ever paying taxes from property acquired during 1031 exchanges. Many people adopt the strategy of doing exchange after exchange to defer the taxes until their death. When you pass away, all capital gains accumulated over the years of doing 1031 exchanges are eliminated. This would allow your heirs to inherit the property on a stepped up basis (meaning they inherit the property at the current fair market value of the property).

Midland 1031 is a Qualified Intermediary and is not a fiduciary or financial advisor. As with any investment you should always consult with your CPA or tax advisor for more information.

To begin your 1031 exchange or for general 1031 exchange questions, please contact Midland 1031 at 239-333-1031.

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