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What is a 1031 Exchange?

As a real estate investor you can take advantage of a 1031 exchange, which is a tax code that allows you to move 100% of the capital gains into another deal and push off a taxable event. Let’s break this down into a digestible example...

If you were to invest $100,000 into a deal today and over the coming years your initial investment grew to $150,000, you made $50,000.Now that it is time to sell, you receive your initial $100,000 back and you would then be liable to pay tax on the $50,000 profit. Rather than paying tax, savvy investors utilize a tax loophole…

1031 Exchange: “A provision of the Internal Revenue Code (IRC) that allows a business or the owners of investment property to defer federal taxes on some exchanges of real estate. The provision is used by investors who are selling one property and reinvesting the proceeds in one or more other properties.”

The savvy investor uses this provision to invest the full $150,000 into another deal placing their funds into escrow for 180 days. Within the first 45 days the investor can identify up to three potential properties they would feel comfortable rolling their capital into. Over the next 45 days they must decide on one of three opportunities and move forward with the acquisition. If done correctly the full sum of the investors money is now usually in a larger deal for economies of scale and diversification advantages. The other benefit to the investor is that the 7% annual cash flow they received on $100,000 is now accruing and paying out on a larger dollar amount.

If you are interested in learning more about QC Capital and potentially utilizing your 1031 monies you can create an investor partner account to review available opportunities. We only offer 506(c) opportunities so you must be of accredited status. If you need help assessing your status let’s find a time to review.

Nicholas Abraham

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