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Understanding 1031 Exchanges

With a 1031 exchange, you are able to defer capital gains tax as well as depreciation recapture as you reinvest the proceeds from the sale of your investment property into a replacement property. This strategy helps to preserve the wealth in your estate and keep it working for you.

Coming from the Internal Revenue Code Section 1031, an exchange deferral allows you, in addition to deferring capital gains taxes and depreciation recapture tax liabilities, to continue this exchange as many times as you wish. The only limitation comes when you sell property without reinvesting in a new property; you will have capital gains and depreciation recapture tax liabilities.

While a tax-deferred 1031 exchange is a powerful tool in your wealth-building toolbox, we highly recommend you consult with a professional to ensure that every box and requirement is checked for the Internal Revenue Code Section 1031. Strict timeline and procedural requirements are involved with each 1031 exchange, and the failure to meet all requirements can result in immediate tax liabilities and their associated penalties.

Parties Involved and Steps in a DST/TIC Offering:

In a DST/TIC offering for a 1031 exchange, there are typically five parties participating which include, but not limited to:

  • Sponsor
  • Lender
  • Attorney
  • Broker/Dealer
  • Investor 

Additionally, there are important steps on the sponsor side, included in a DST/TIC offering which may include, but are not limited to:

  • Sponsor Due Diligence
  • Arrangement for Debt Financing
  • Preparation of the Private Placement Memorandum
  • Signing the Selling Agreement
  • Presentation to Prospective Investor 

As you can see, there are many moving parts to a DST/TIC offering for a 1031 exchange. At Pivot Professional Partners, it is our job to provide best-in-class service and assist you as you utilize 1031 exchanges. Contact us today to learn more about how we can help you understand with1031 exchanges.

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