The definition of like kind in the realm of real estate is very broad. The new property that is received in the Sec. Under Section 1031, taxpayers can postpone paying this tax if they reinvest the profit in similar property. 1031 Exchange rules state that any difference between the amount of net sales proceeds received and total. Split treatment: Use part of the property. The taxpayer took depreciation on Property X for the 10 years they owned the property. Failure to use a QI can result in missteps, causing the disqualification of the exchange and the. All you need to do is subtract the exchange value of the property from the original property value. You must complete the purchase of a new property or properties within 180 calendar days from the time you sell. Formula for basis of like-kind property received. This 1031 Exchange calculator will estimate the taxable impact of your proposed sale and purchase. Michael Burwick of Greenspoon Marder and Kyle Kadish of Advantage Wealth Solutions consider what this. Calculate the taxes you can defer when selling a property. Applying section 1. 7427. When engaging in complex financial transactions. Most of our customers are in the process of selling or have sold investment real estate and they are looking for properties to strategically reinvest their capital into that will generate income while deferring their capital gains taxes under IRC 1031 which is called 1031. , in the form of an audit report at the e-filing portal of Income-tax in Form No. 1031 Learn with flashcards, games, and more — for free. Fees increase rapidly in proportion to the size and complexity of the transaction. capital gains and depreciation recapture taxes apply to the $120,000 gain ($585,000 minus $465,000 cost basis). 137 months Conversion Table For quick reference purposes, below is a conversion table that you can use to convert from days to months. (Copper has theIn the first two years, your personal usage cannot exceed 14 days, and you’ll need to rent it for 10 times the number of personal use nights: at least 14 days per year. In the first scenario described above, the married couple is able to take their $1. The 26 U. There are two ways to depreciate real estate post 1031 Exchange. Internal Revenue Code, is a way to postpone capital gains tax on the. 643. Example: convert 15 United States Dollar to Indian Rupee: 15 United States Dollar = 15. For the purposes of a 1031 exchange, “you” can certainly be an individual investor. Learn how to complete a partial 1031 exchange. It is also known as the taxable amount of the realized gain. Post-1031 exchanges the tax code states that you must split depreciation into two separate schedules as the preferred method. And voila! You have the 1031 exchange value. ”. A 1031 exchange, named after section 1031 of the U. This is similar to the like-kind provision under Section 1031, but no where near as liberal. But, the scope of the program was limited starting January 1, 2018, to only include business. ”. Calculating the basis for the new (replacement) property in a 1031 exchange is simpler--the purchase price plus the commission paid. If you do, the IRS may choose to challenge it. The portion of the exchange proceeds not reinvested is called “boot” and is subject to. com Section 1031 of the IRC defines a 1031 exchange as when you exchange real property used for business or held as an investment solely for another business or investment property that is the same. IR-2020-262, November 23, 2020. 1. The formula set forth above is provided to help you determine your approximate gain and the sums that you may wish to defer through your exchange transaction. To receive full tax deferral. Your exchange agreement specifies only 90% of the rental proceeds are to be included in the exchange. Considering that long-term capital gains taxes are either 15 or 20 percent, and short-term capital gains rates range from. In Peabody Natural Resources Co . The first property—the one your client is selling—is known as the Relinquished Property, and the like-kind. 1031 (a)-1 (c) provides as an example of a like-kind exchange the exchange of a leasehold of real property with a remaining term of 30 years or more for a fee interest in real property. Pulling money out tax free prior to the exchange would contradict this point. This is a great investment strategy to diversify your portfolio with a different type of. A 1031 exchange is a commercial real estate transaction that allows investors to defer capital gains taxes on the profitable sale of an investment property as long as the sale proceeds are reinvested/used to purchase a like-kind property. Give our qualified intermediaries a call today to get your 1031 exchange off the ground. Sometimes your investment real estate will not be entirely investment real estate. Income-tax law requires the assessee to get his books of accounts audited in pursuance of the requirement under Section 44AB of The Income Tax Act, 1961. Items that Increase Basis in a 1031 Exchange. It was coming from reputable online resource and that we like it. SEE OUR COMPANY FACT SHEET. Requires only 10 inputs into a simple Excel spreadsheet. The real estate in question must, however, pass two requirements: (1) it must be kept for investment purposes; and (2) it must be of “like kind. Let’s start with the simplest word: you. Having exchanged your $800,000 property for a $700,000 asset, cash boot of $100,000 is realized. In an IRC §1031 tax-deferred exchange, the tax basis in the replacement property is reduced using a formula that takes into account the adjusted basis of the relinquished property sold in the exchange. Second, Section 1033 requires that the property lost to involuntary conversion be replaced with like-kind property. Because any money you receive from selling a property is taxable, you technically can’t receive that money when you sell your property. In addition, you need to borrow a minimum of $150,000 to pay for it. When you sell an investment property, you are disposing of a tangible asset that the IRS classifies as “real property. you may be able to achieve similar results with code section 721. The timeline needs to be adhered to from beginning to end, most notably at the 45-day and 180-day markers, or you can lose the 1031 exchange status and be on the hook for the full. Deferred Gain. The remaining gain of $175,000 is taxed at the long-term capital gains rate of 15% for a total of $26,250. 7 Key Rules for a 1031 Exchange. -Loss recognized. Pro | May 11 2013, 17:41 | 1031 Exchanges. It is possible to have little or no equity or profit upon a sale and still owe capital gains taxes. It allows you to replace one investment or business property with a like-kind property and defer the capital gains on the sale if Internal Revenue Service (IRS) rules are meticulously followed. In response to this change, questions arose on what was defined as "real. If you initiate a 1031 exchange, this value is deferred gain until the replacement property is sold. A 1031 exchange is a popular tool for commercial real estate investors to defer paying capital gains tax. 1031 exchanges and 1033 exchanges both allow taxpayers to defer their capital gains taxes when selling property, but there are some notable differences between the two. But of course, these rules aren’t mandated. A partial exchange allows you. If you want to meet the conditions for a 1031 exchange, you much. It works by reinvesting proceeds from the sale into a similar property. The most effective way to avoid depreciation recapture is to use a 1031 exchange. The $80,000 of gain from depreciation is taxed at 25% for a total of $20,000. This calculator will help you to determine how much tax deferment you can realize by performing a 1031 tax exchange instead of a taxable sale. ; Therefore, you recognize a gain of $25,000 − $20,000 = $5000. The Property Owner Must Pay Capital Gains Tax on “Boot”. In other words, an investor can exchange one investment. A like-kind exchange under United States tax law, also known as a 1031 exchange, is a transaction or series of transactions that allows for the disposal of an asset and the acquisition of another replacement asset without generating a current tax liability from the sale of the first asset. Since you are likely conducting a 1031 exchange to defer payment of your capital gains tax, boot will counteract this benefit. Step Number Three. If you want to meet the conditions for a 1031 exchange, you much purchase a replacement property for at least $650,000. (3) Rate varies by state. Section 1031 used to be applicable for exchanges of a larger range of real estate types and personal property items, such as art, franchises, equipment, partnership interests, stock in trade, securities, certificates of trust, and beneficial interests. The most complete guide on partial 1031 exchanges including an example of a partial 1031 exchange. Learn More. This is another reason why consulting your accountant is a must. Jeff Peterson can be reached by telephone at (612) 643-1031 or toll free at (877) 373-1031. Free, simple 1031 Exchange Capital Gains Calculator to help you estimate and calculate the reinvestment requirements for a tax-free exchange. Applying section 1. 137 months Result: 65 days is equal to 2. • when property is transferred by lease, unless the lease is for a term of years re newable forever. The gain, not the profit or equity, from the sale of the investment property is subject to a combination of capital gains taxes, Medicare tax, and the tax on the recapture of depreciation. 1031 Exchanges Don’t Work to Downsize an Investment. There was $700,000 of depreciation leftover at the time of the exchange (aka “carryover basis”). A 1031 Exchange allows real estate investors to defer capital gains tax on recently sold investment property by reinvesting. Increased Buying Power. However, there are times when you may want to hold back part of the sales proceeds and use the money for another purpose. While earlier interpretations of the section allowed investors to defer capital gains taxes on a range of investment assets, Congress restricted the definition to investment real estate in 2017. For homeowners wanting more flexibility in the 1031 exchange timeline, there is such a thing as a deferred exchange in which the owner sells the property to a qualified intermediary, known as a 1031. ”. If you do a search for "five year hold and the 1031 exchange. Requirement #1: The first requirement seems simple enough: to be eligible for a 1031 exchange, you must be a real estate investor, in possession of an appreciated piece of real property. Internal Revenue Code, is a way to postpone capital gains tax on the sale of a business or investment property by using the proceeds to. Energy can be transferred from the system to its surroundings, or vice versa, but it can't be created or destroyed. They also can exchange. 3%. Only the excess basis of $500,000 ($1,500,000 – $1,000,000) is eligible for bonus depreciation. S. - Calculation of Exchange Expenses - Information About Your Old Property. We can assist you in complying with. This is. Jean Bolger. The 1031 Exchange Equation. The IRS oversees these exchanges and stipulates tight deadlines for completion, along with other. Learn how to complete a partial 1031 exchange. 2) You haven't found the right property. Yes, it’s possible to use a 1031 exchange to start a business. In other words, conducting a 1031 exchange in Texas follows the exact same guidelines put forth by the 26 U. Many people (including qualified intermediaries, CPAs, and attorneys) believe that you are required to have debt on your New Property in an amount equal to or greater than the debt that was paid off on your Old Property. A enters $40,000 on line 20, the smaller of line 15 or line 19. 1031 (k)-1(j) 1 This provides examples to determine the basis of each group of assets. a Two of these statements are correct. 1031 Exchange. You choose to sell your current property with a $150,000 mortgage on it. These “non-exchange expenses” include: Mortgage points and assumption fees. In California, a §1031 exchange allows you, as a real estate investor, to defer the federal and state income tax that would normally be incurred from selling real property, by using the proceeds of the sale to immediately purchase another ‘like-kind’ property. This is a common misconception: A 1031 exchange does not equate to tax-free gains. David Greene reveals the complete, realistic, and uncomplicated formula that all self-made multimillionaires implement to achieve wealth and financial freedom. 5 days Result: 180 hours is equal to 7. Jeff’s company is a Qualified Intermediary for 1031 exchanges of real estate. (877) 797-1031. A 1031 exchange allows an investor to sell a property and roll the proceeds from the sale into another “like-kind” asset of greater value. The new property that is received in the Sec. A 1031 exchange is a way to sell and buy real estate while avoiding capital gains taxes. We are doing a 1031 exchange on a property we are selling to purchase a retail plaza property. +Adjusted basis of boot given. • to a grantee other than a dealer, solely for the purpose of, and as a step in, the prompt sale to others. In this case, you would have. With interest rates at an all time low and a 30% down payment, an investor can generate income. 0. When you can defer capital gains taxes, it allows you to grow. Holding period requirements do not have a clear answer. It has been my primary residence but I want to move. 25. The 1031 Exchange Timeline. The purpose of this article is to provide an overview of some of the most fundamental 1031 exchange rules and concepts, written in a way that doesn't require. The Exchange Must be for Like-Kind Property. A 1031 Exchange is a real estate transaction that allows individual investors to defer long term capital gains taxes on the profitable sale of a real estate investment property as long as the sales proceeds are reinvested into another, like kind property. com help customers to defer taxes and make better investment decisions. A “1031 exchange” is the nickname used to discuss Section 1031 of the U. S. To pay no tax when executing a 1031 Exchange, you must purchase at least as much as you sell (Net Sale) AND you must use all of the cash received (Net Cash Received). The Bottom Line. S. Buying 1031 Exchange Replacement Property from a Related Person Mar 14, 2022. The Taxpayer that Sold and Acquired the Exchange Property Must be the Same. If the seller takes any cash from the sale, that amount becomes taxable boot. Maximize your gain. Tax Deferral. The publisher is notLet’s break down the key 1031 exchange rules in layman’s terms: 45-Day Identification Period. Could I rent it out for a year and then do a combination of a 1031 exchange. Exeter 1031 Exchange Services, LLC 402 West Broadway, Suite 400, San Diego, California 92101 Office: (619) 239 -3091 • Facsimile: (866) 393-8371 • Web site: Suppose you are a real estate investor. Asher joined the Accruit team in 2012. 1031(a)-3 of the regulations, A determines that the section 1245 assets are real property for section 1031 like-kind exchange treatment. The transitional rule applies only to the employer and does not allow a reverse 1031 exchange. The 1031 Exchange Calculator above provides a simple estimation of potential taxes related to the sale of investment property and net sales proceeds available for reinvestment. That’s $900,000 in capital gains. A taxpayer will also trigger taxes if they opt to receive some cash out at the closing of their relinquished property. Calculate the taxes you can defer when selling a property. That's why we're giving you the same 1031 exchange calculator our exchange experts use to help investors make informed decisions. There is some complexity and tight timelines to a 1031 exchange so it can be helpful for real estate. Are you interested in deferring your taxes when you transition between investment properties but don’t want to roll all of your cash proceeds forward into. For many, this is a popular – and effective – strategy through which to grow and diversify a real estate portfolio over time. This year we will sell the townhouse. , b. 2. In this case, you calculate your new basis by subtracting the capital gains deferred ($130,000) from the purchase price of the new property ($500,000), leaving you with a new cost basis of $370,000. When 1031 Exchanges originated over 100 years ago, it was necessary for the Seller and Buyer to literally exchange the two associated properties - a lot has changed since that time. Get Your Copy. For example, if you sell a property for $200,000 but only re-invest $180,000, the $20K difference is known as boot. Capital Gains Calculator. Question 8. The good news is that these transactions still qualify for tax deferral under Section 1031 of the Tax Code. Interchange Timelines and Rules 1031. 25. A 1031 exchange (often referred to as a like-kind exchange or a 1031 tax deferred exchange), allows investors to sell a property held for trade, business, or investment ("relinquished property") and exchange it for a "like-kind" property also to be held for trade, business, or investment ("replacement property") allowing investors to. Like-kind exchange. Although not a complete list, the costs related to obtaining the loan should not be deducted from the proceeds. Under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their relinquished property to formally identify a replacement property or properties. To qualify as like kind, two assets must be of the same type (e. Technically, there are. Under IRC Section 1031, an exchanger or taxpayer executing a delayed exchange has 45 calendar days from the closing date of the sale of their relinquished property to formally identify a replacement property or properties. Don’t Get the Boot! Investors need to understand what is cash boot in a 1031 Exchange so they can. Say you’re selling relinquished rental property for $500,000 while wanting $50,000 in cash. Capital Gains Calculator. 115-97, amended Sec. When you are ready to begin your 1031 exchange in Florida, Idaho, Nevada, Oklahoma, Mississippi, Illinois, Kansas, Washington, Florida, Arizona, Utah, California, or anywhere else, we are here to help, with some of the lowest fees in the country, starting at just $695. This property exchange takes its name from Section 1031 of the Internal Revenue Code (IRC). It sells for $650,000. Suppose that the couple purchases a replacement 1031 Exchange property for $3MM, but takes on $2MM in debt. The IRS considers a property swap an investment and an excellent way to improve the economy. A portion of the proceeds (the “boot”) is received in cash. Question 8. Capital gains tax might result from selling your home, stocks, bonds, commodities, mutual funds, a business, and other similar capital assets. Failure to use a QI can result in missteps, causing the disqualification of the exchange and the. Investors can lose over 37% of their capital gains to taxes. Regular 1031 exchange rules are already challenging enough. S. With over 10 years of experience in the 1031 industry, Asher has extensive knowledge of all facets of 1031 Exchanges. Also, because your total income was above $200,000, the entire gain of $255,000 is subject to the 3. This is a like-kind exchange. The “1031” in the 1031 Exchange name refers to the section of the Internal Revenue code that permits such. Also, it’s important to remember that a 1031 Exchange requires the taxpayer to purchase more real estate. Under the Three Property Rule the exchanger may identify up to three properties, regardless of value, as long as. Boo! Thanks to the 1031 exchange, you can reinvest the profits into another investment property (that costs the same or greater than the property you just sold) and avoid paying those taxes altogether. The California State taxes that were previously deferred will be due. 1031 exchange benefits. Post-1031 exchanges the tax code states that you must split depreciation into two separate schedules as the preferred method. exchange formula with the specific heat of water taken to be 4. An Example would be a 100-acre farm. Get Your Copy. You complete the exchange by purchasing a $500,000 property with a mortgage of $350,000. Conversion Table. Benefits. David Greene reveals the complete, realistic, and uncomplicated formula that all self-made multimillionaires implement to achieve wealth and financial freedom. It states that none of the realized gain or loss will be recognized at the time of the exchange. A 1031 exchange allows you to avoid depreciation recapture for the same reason it allows you to avoid capital gains taxes. ; The basis of the replacement property is $20,000 −. Exchangers can defer the payment of capital gains taxes and other types of taxes on the sale of their property if they purchase a replacement property in accordance with 1031 guidelines. Adjusted basis of like-kind property surrendered. The enactment of the law known as the Tax Cuts and Jobs Act (TCJA), P. (API) is one of the largest and most experienced 1031 exchange companies in the U. However, there are times when you may want to hold back part of the sales proceeds and use the money for another purpose. How to Maximize your 1031 Exchange in a Hot Seller’s Market Mar 15, 2022. Treas. While short-term capital gains – realized in. And, the loan’s parameters can be customized to meet the unique needs of the transaction. 1031 EThe term “1031 exchange” refers to Section 1031 of the Internal Revenue Code and is also called a “like-kind” exchange of property. The role that debt plays in an exchange is probably one of the most misunderstood areas of 1031 law. 8. 5MM in net sale proceeds. Everything you need to know about 1031 exchanges, including taxpayers' ability to sell investment property and exchange for replacement property tax deferred. To qualify as like kind, two assets must be of the same type (e. Each time, the adjusted basis of the property is carried over in the manner described above. Treas. A partial exchange allows you to retain. “Cash boot” is the receipt of cash and “mortgage boot” (also referred to as debt relief) is a. A 1031 exchange is the process where a person sells one investment property and purchases another “like-kind” property (or multiple properties) of equal or greater value than the property sold. A trade or business with business income attributable to sources both inside and outside of California are required to apportion such income. If the investor does not move forward with an exchange, then the transfer of property is a sale subject to taxation. Nevertheless, deferring taxes on as many assets as possible for as long as possible. Labor index has increased by 44. The answer is: The same as those on the federal level. Consult with your tax advisor to determine the correct values and whether an exchange is appropriate for your circumstances. There are two parts then to the sale: the $450,000 exchanged. This might be obvious, but it’s worth noting: in a 1031 exchange, both the property being sold/exchanged and the property being bought need to be purchased by the same party. A Guide to 1031 Exchanges. In theory, an investor could continue deferring capital. In such cases, the IRS typically requires you to allocate the property's value between the investment and personal use portions. Using a 1031 tax-deferred exchange requires advance planning. It means the exchange must be between two properties of equal or greater value, and the properties must be of the same type. Material index is fluctuating and has. To qualify for a 1031 exchange, the funds must be held by a qualified intermediary, such as e1031xchange, and an exchange agreement must be signed. If you’re working with a qualified intermediary,. A 1031 exchange – also known as a like-kind tax deferred exchange or Starker Exchange – is a process used by real estate investors around the country to defer the payment of capital gains tax. 1031 Learn with flashcards, games, and more — for free. 040, requires an exchange facilitator to either maintain a fidelity bond in an amount of not less than one million dollars that protects clients against losses caused by criminal acts of the exchange facilitator, or hold all client funds in a qualified escrow account or qualified trust. Replacement property must be identified within 45 days. 95% Rule. 1031 Exchange Calculator. The total new basis for the replacement property received would be the cost of the new property subtracting the gain deferred in the exchange. Using a 1031 exchange to move from one investment property to another while deferring the tax liability on any capital gain is a useful tool for real estate investors who want to reinvest the proceeds into like-kind assets. Under the 1031 exchange, the new or replacement property's value must be equal to or higher than the relinquished property's value to defer the entire amount of the capital gains taxes. "In a 1031 exchange, properties must be of equal or greater value to fully defer all capital gains tax liabilities – you cannot use the exchange process to improve your financial standing or reduce leverage. 1031 refers to section 1031 of Internal Revenue Code. 1031 exchange is purchased for $1,500,000. -Only a. Tax Liability: A tax liability is the amount of taxation that a business or an individual incurs based on current tax laws. ”. What strategies do you use to identify and secure suitable replacement properties within the 45-day window in a 1031 exchange? Let's get a discussion . The majority of the revenues from the sale of a. According to Section 1031 of the U. The simplest type of 1031 exchange involves a simultaneous swap of one. The whole point of the 1031 Exchange is moving investment money forward to invest in more property. The buyer has more flexibility with acquiring the property since they are. For each additional property to be processed, it’s ~$350 more. Let’s say Bill and Julie, a married couple who file their taxes jointly, bought their home many years ago for $100,000. Both the property transferred and the property received are held either. The three primary 1031 exchange rules to follow are: Replacement property should be of equal or greater value to the one being sold. Converting rental property acquired in a 1031 exchange to a primary residence blends Section 1031 with Section 121 that provides the $250,000/$500,000 exclusions. In this article, we are going to talk about how to know if it’s a good time for you to do a 1031 exchange. Work With the 1031 Exchange Experts. Commercial property is depreciated over 39 years. 1031 exchange purposes, this taxpayer avoids taxable gains and Sec. This new LLC would own or be titled with the retail plaza we're purchasing. They’re looking at $900,000 of capital gains — well over the $500,000 exclusion for couples. “Buyer is aware that the seller intends to perform a 1031 exchange. Introduction to 1031 Exchange Calculation Formula. Code section 721 states that if you contribute property for an interest in a partnership, it is tax-free to the extent the only property received in. When the replacement property has a lower value than the sale price of the relinquished property, that difference is. The total gains deferred of $500,000 must be split proportionately between the two replacement properties Y and Z to determine what amount is taken from each property’s acquisition cost to come up with the new cost basis for each property. The words “like-kind” refer to the. Add the Closing Costs and Capital Improvement Costs for Your Real Estate. Computing Gain For Multi-Property 1031 Exchange. Internal Revenue Code, investors can defer capital gains taxes by trading one investment property for another of similar kind. These calculations are estimates for the purpose of demonstration. 1031 exchange for $1 million. A property is “like-kind” when it is replacing another similar property. Regs. e. A 1031 exchange can help you defer capital gains taxes on investment property, but the rules are complicated. Understand the process, tradeoffs, and how to determine if it is a good fit for your financial goals. 37. The QI instructs the person preparing the transfer deed to directly deed the property from the taxpayer to the buyer; however, the QI directly receives the funds from the closing of the sale. To qualify for a 1031 exchange, the following conditions you must meet: The. IPX1031 focuses solely on Tax Deferred Exchanges. Includes state taxes and depreciation. ”. Example: A property was sold in a Sec. A 1031 exchange is a section of the United States tax code that allows taxpayers to defer taxes on selling real estate or other investments by reinvesting the proceeds in a like-kind asset. Construction delays are common, and if the property is not completed and acquired within the 180-day window, the exchange can fail, resulting in hefty tax liabilities. 15th Street Suite 700. C. From 2010 through 2020, the average sale price of assets involved in 1031 exchanges was $575,000. (“Exchangor" or "Exchanger") Individual or entity desiring an exchange. 1031(a)-3 of the regulations, A determines that the section 1245 assets are real property for section 1031 like-kind exchange treatment. Boot is a portion of the sales proceeds you receive from a 1031 exchange that isn’t re-invested in a replacement property. 1. The 1031 IRS Code. In a partial 1031 exchange, “boot” refers to any leftover sale proceeds subject to tax. 3217 Indian Rupee. The exchange of property for the same kind of property may qualify as a nontaxable exchange under section 1031 of the Internal Revenue Code. type of Section 1031 exchange is a simultaneous swap of one property for another. If each sale is conducted as a 1031 exchange, with all proceeds reinvested and all gains deferred, capital gains continue to be deferred indefinitely. Using the previous example, assume the company owes $350 in brokerage fees besides the expense of the asset's basis of $2,500. S. 1031 exchange: selling as individual, buying as LLC? 1. We would like to setup a new LLC with my parents trust as a member of the LLC. § 1031) states the recognition rules for realized gains (or losses) that arise as a result of an exchange of like-kind property held for productive use in trade or business or for investment. Additionally, A determines that the total depreciation allowed or allowable on the section 1245 property is $50,000. Property Y: $300,000 / total replacement property value of $1,200,000 = 0. If you want to take some cash out of your relinquished property, you don’t have to roll over the entire sales proceeds into a like-kind. Many of those rules—such as the following—are specific to replacement. Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. A 1031 exchange is a real estate investing tool that allows investors to exchange an investment property for another property of equal or higher value and defer paying capital gains tax on the profit they make from the sale. Sold later absent an 1031 Exchange for $585,000, e. Many factors are involved in calculating taxes, including factors unique to each taxpayer.