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Thanks to Internal Revenue Code (IRC), Section 1031, a properly structured 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gain taxes. IRC Section 1031 (a)(1) states:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment.”
An investor has a $200,000 capital gain and incurs a tax liability of approximately $70,000 in combined taxes (depreciation recapture, federal and state capital gain taxes) when the property is sold. Only $130,000 remains to reinvest in another property.
Assuming a 25% down payment and a 75% loan-to-value ratio, the seller would only be able to purchase a $520,000 new property.
If the same investor chose to exchange, however, he or she would be able to reinvest the entire $200,000 of equity in the purchase of $800,000 in real estate, assuming the same down payment and loan-to-value ratios.
To discuss how NLG’s Private Client Services team can assist you, please contact us
Timing is important. Certain actions must be taken in sequence and exchanges must be completed within strict time limits.
The Net Lease Group’s 1031 Concierge™ service advises and assists real estate owners and investors with the disposition and acquisition of commercial real estate while satisfying I.R.S. rules and regulations regarding tax deferred like-kind exchanges as detailed in section 1031 and 1033 of the Internal Revenue Code.
The Net Lease Group’s 1031 Concierge™ service evaluates, selects, negotiates, acquires and finances net lease investment assets of all types to satisfy tax deferred 1031 and 1033 like-kind exchanges on behalf of NLG’s clients.
NLG’s 1031 Concierge™ provides the following services and benefits to make your 1031 exchange an efficient, stress-free, and enjoyable process: