Transaction tax

1031 Tax-deferred exchanges still alive | Tucker Arensberg, CP

Commercial real estate professionals and investors have spent much of 2021 worrying about the continued availability of 1031 tax-deferred exchanges for investment real estate. There were a number of proposals floating around Congress that would have done everything from canceling the benefits of a 1031 exchange transaction to ending the availability of exchanges all together. We are one month into 2022 and 1031 exchanges are still active.

With real estate values ​​rising dramatically due in part to low interest rates and low inventory, investors can get even more bang for their buck by using a 1031 exchange. Most real estate investors are familiar with the most common type of 1031 exchange where the investor sells an investment property and then identifies and acquires a similar replacement property within a prescribed time frame, but there are a number of other types of 1031 exchanges available for use.

  • the reverse swap is available in the event that the investor buys the “replacement” property before selling the “abandoned” property. In a seller’s market, this relieves some of the pressure to identify a replacement property within 45 days and complete the purchase within 180 days.
  • the improvement exchange is available to acquire vacant land or abandoned property and spend the proceeds of the 1031 exchange to construct a new building or renovate an existing building.

While we’re not yet out of the woods on what action Congress might take to cancel, limit, or end 1031 exchanges outright, these transactions remain a viable tool for the savvy real estate investor.