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Can a 1031 exchange help you grow your real estate investment portfolio?

Investors can grow their real estate investment portfolios faster by taking advantage of a 1031 exchange. Instead of paying taxes on their proceeds, they keep all their money and reinvest it into a new property. Let’s say the value of an investor’s rental property has grown, and they want to reinvest in another property.

What is a 1031 exchange?

A 1031 exchange, also known as a like-kind exchange, is a powerful tax-deferment strategy popular with experienced real estate investors. It allows you to defer capital gains taxes on an investment property when it’s sold—as long as the investor purchases another like-kind property with the proceeds of the first property sale.

How much tax should I pay on a 1031 exchange?

Adding federal capital gains tax (15%), California capital gains tax (13.3%), and depreciation recapture (25%), your tax liability would be $52,525! However, with a 1031 exchange, you could defer this hefty tax bill by acquiring a replacement property of equal or greater value.

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