Benefits of
Exchanging vs. Selling
Whether it is real estate or capital equipment, the sale of a business or investment asset can create a large tax liability. A properly structured tax deferred exchange however, allows businesses and individuals to postpone or potentially eliminate the taxes due on the sale of their investments. The exchange requires the Exchanger to use the newly purchased assets to replace the existing assets. Deferring the tax now will allow you to invest more money into your replacement property and postpone any gain from depreciation recapture.

Why Exchange?

  • Use 100% of the funds from the sale of the relinquished property to purchase a replacement property.
  • Postpone or potentially eliminate taxes due on your current sale.
  • Exchange as many times as you’d like.
  • Know the facts. Sometimes an exchange may not be the most profitable option. An Exchange Attorney can help you decide whether a 1031 Exchange is right for your individual situation.

An Example:

An institutional investor wants to sell his apartment complex in Illinois (currently valued at $16,500,000) and purchase an office building in California. If the original purchase price of the apartment complex is $10,000,000, the investor would have to pay roughly $2,275,000 in capital gains tax on the $6,500,000 gain recognized from the sale. By deferring his taxes through a 1031 exchange, the investor is able to postpone the capital gains tax and use 100% of his proceeds from the sale of their apartment complex in Illinois towards the purchase of the office building in California.

  Selling Exchanging
Sale of Apartment Complex $16,500,000 $16,500,000
Original Purchase Price $10,000,000 $10,000,000
Gain Recognized $6,500,000 0
Capital Gains Tax $2,275,000 0
Tax Deferral Savings 0 $2,275,000
Cash Available for Reinvestment $14,225,000 $16,500,000