1031 Exchanges

January 30, 2024

In this episode of ‘Be A Better Landlord’, we are joined by Kayla Mahoney, a Commercial Real Estate Advisor from Capital Property Group, to discuss the topic of 1031 exchanges.

Krista and Kayla discuss the intricacies and advantages of 1031 exchanges, a method for real estate investors to defer capital gains taxes through property exchanges, created in 1921. A 1031 exchange allows investors to sell a property and reinvest the proceeds in a new property while deferring all capital gain taxes.

Key points include:

  • Definition and Purpose: A 1031 exchange enables avoiding capital gains taxes through property exchanges. It’s beneficial for investors looking to leverage appreciation to invest in larger properties for better cash flow.
  • Identification Period: After selling a property, investors have 45 days to identify up to three potential like-kind properties in writing and must close on one within 180 days to qualify for the tax deferment.
  • Like-Kind Property: This term refers to investment properties generating rental income. Land and sometimes oil investments also qualify. The goal is to trade up or equal in value to maintain or increase cash flow.
  • Process: Kayla emphasizes the importance of understanding debt and capital gains when considering a 1031 exchange. She advises consulting with experts in both commercial and residential real estate to maximize returns.
  • Qualified Intermediary (QI): A QI is necessary for a 1031 exchange, ensuring compliance with tax laws without having fiduciary duties to either party. Their role is critical for navigating the complex tax landscape of these exchanges.
  • Real-Life Example: Kayla provides an example from the Denver market, illustrating how an initial investment in a duplex, with minimal down payment and subsequent value-adding improvements, can significantly increase in value, allowing the investor to upgrade to properties with higher cash flows, thereby accelerating wealth accumulation through real estate.
  • Personal Experience: Kayla shares her own journey into real estate investment, including plans to use a 1031 exchange for her condo and invest in a fourplex using an FHA loan, highlighting the practical benefits of house hacking and real estate investment for achieving financial freedom.

The discussion encapsulates the value of 1031 exchanges for real estate investors, offering insights into the process, strategies for success, and the potential for wealth accumulation and financial freedom through savvy real estate investments.

Follow Kayla:

Learn more about Capital Property Group.


Video Transcript


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