HOW IT WORKS*

Investors whose property has increased in value can “trade up” to a different property or properties without triggering payment of capital gains taxes. This allows investors to reap the benefits of the value they have accrued while keeping their equity intact and leveraging it to maximize investment return. These transactions are subject to strict regulations, some (but not all) of which are:

• The investor may not “cash out” any of the equity in her or his property. All sale proceeds must go toward the purchase of the replacement property.
• The exchange property that the investor purchases must be of equal or greater value than the property that was sold. (In the event that the investor is exchanging from a single property to multiple properties, the aggregate value of the purchased properties must be equal to or greater than the sold properties.)

• The properties exchanged must be “like kind.” For example, a multi-family apartment building cannot be exchanged for vacant land or commercial income property.
• The identification and purchase of the exchange property are subject to strict time frames and regulations. Failure to comply with these regulations can result in the exchange’s exclusion to the 1031 exemptions, requiring the investor to pay capital gains.