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Why Exchange?


The answer is simple but the answer may surprise you. The only reason to do a Section 1031 exchange is to make a better investment! The deferral (not elimination) of tax available through a Section 1031 exchange simply means that the payment of the capital gains tax on the sale of your old property is postponed. In effect, Uncle Sam is loaning you the deferred tax money to make the new property investment. With a few exceptions that loan (the amount of tax deferral) must be paid when you sell (not exchange) out of the new property. Would you borrow money (even at a zero interest rate) to make a bad investment? The focus of the exchange should always be on the new investment and not on the taxes being postponed. The new property investment should make business sense independent of the tax deferral benefit. However, with a good investment property purchase, the tax-deferred exchange can dramatically increase the economic return on the investment property.

Our staff attorneys Dennis P. Helmick and Kelly M. Yates are available to review your exchange strategy with you at no charge.