Arby Eivazian Dre#01948830
619-990-4436
1031 Exchange: Maximize Your Investment Potential
A 1031 Exchange, under Section 1031 of the Internal Revenue Code, allows investors to defer capital gains taxes by reinvesting proceeds from the sale of an investment property into a like-kind property. This strategy is particularly beneficial for apartment owners in San Diego aiming to grow their portfolios while optimizing tax efficiency.
Key Benefits
Tax Deferral
Defer capital gains and depreciation recapture taxes, allowing full reinvestment of proceeds.
Portfolio Growth
Leverage tax savings to acquire higher-value properties or diversify holdings.
Wealth Preservation
Maintain equity by avoiding immediate tax liabilities.
Important Timelines
45-Day Identification Period
Identify potential replacement properties within 45 days of selling the relinquished property.
​180-Day Exchange Period
Complete the acquisition of the replacement property within 180 days of the sale.
These periods run concurrently; timely action is crucial.
Identification Rules
1
Three-Property Rule
​Identify up to three properties, regardless of value.
2
200% Rule
Identify any number of properties, provided their combined value doesn't exceed 200% of the relinquished property's value.
3
95% Rule
If identifying properties exceeding the 200% threshold, you must acquire at least 95% of their total value.
​Types of Exchanges
Delayed Exchange: Sell the relinquished property before acquiring the replacement.
Reverse Exchange: Acquire the replacement property before selling the relinquished one.
Improvement Exchange: Use exchange funds to improve the replacement property.
Eligible Properties
Qualifying properties include those held for investment or business purposes, such as:​
​
-
Apartment buildings
-
Duplexes, triplexes, and fourplexes
-
Commercial real estate
-
Vacant land intended for investment
Properties held primarily for resale (e.g., flips) do not qualify.
Partial Exchanges
It's possible to perform a partial 1031 Exchange by reinvesting only a portion of the proceeds. However, the non-reinvested portion may be subject to capital gains taxes.
Role of a Qualified Intermediary (QI)
A QI facilitates the exchange by:
​
-
Holding sale proceeds to prevent constructive receipt
-
Preparing necessary documentation
-
Ensuring compliance with IRS regulations
​
​Engaging a reputable QI is essential for a successful exchange.
Next Steps
​Considering a 1031 Exchange? As a San Diego apartment expert, I can guide you through the process, from identifying suitable replacement properties to coordinating with experienced QIs. Let's work together to maximize your investment potential.