What are 1031 Exchange Real Estate Investments and Are They Right for You?

By: Rudy Boroomand, Director of Finance/Corporate Controller

Wealth Preservation

The investment vehicle known as a 1031 exchange is a popular wealth preservation tool for real estate stakeholders.

Used as a means of deferring capital gains taxes on assets, 1031 exchanges tend to appeal to individual real estate investors because they often involve lower purchase prices, and the rules are fairly clear-cut.

Once you understand the rules and definitions of a 1031 real estate exchange, you can decide if this type of investment is right for you.

Section 1031 is a provision in the IRS tax code that allows buyers to sell a property, invest in a new property, and defer all capital gains – essentially “exchanging” one asset for another.

Investors also benefit from 1031 exchanges because they can facilitate significant portfolio growth and increased return on investment.

Related: What is a Good Gross Rent Multiplier?

"Like-Kind" Transaction

The benefits apply only if the new property is a “like-kind” asset purchased solely for trade or investment purposes.

The term “like-kind” is where the line blurs between a valid 1031 exchange and an invalid one (according to the code).

Many people incorrectly assume that this refers to purchasing the exact same type of property as the one being sold.

In reality, a like-kind exchange means that both the asset you’re selling and the one you’re buying are “of the same nature or character, even if they differ in grade or quality.”

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Rudy Boroomand - Director of Finance/Corporate Controller, Trion Properties
Posted By Rudy Boroomand, Director of Finance/Corporate Controller

Rudy is responsible for all accounting, financial reporting, HR, and administrative functions for Trion Properties and its affiliated companies. He has more than a decade of experience in real estate from managing banking relationships, investor reporting, treasury management, systems management & implementation, lender compliance, and the timely completion of partnership tax returns and delivery of K-1s to investors.

Since joining Trion, Rudy has implemented appropriate internal controls, established policies and procedures, materially improved financial reporting, and has proven to be a vital asset to the acquisitions, leasing, property management, and executives at Trion.