1031 Exchange! Yay or Nay?!

[Coleman Kerr]

Any experience with using 1031 exchange? What are some of the downsides??

[Dave Foster]

@Coleman Kerr, This post will be fun to watch evolve :). From my 24 years of being a QI for 1031s and using them for myself the entire time here's when not to do a 1031

1. If you're not going to reinvest in Real Estate ( you want to move into syndications or equities or whatever)

2. If the market isn't showing you properties that make sense (and even here I gotta caveat - You have to be realistic and accept that the market is what the market is.  You wouldn't have sold what you did for what you did and expect a vastly different shopping experience).  The key is how good are you at recognizing value present and future.

3.If you have no profit or depreciation you'll have to recapture.

4. If you have other ways to mitigate the tax bill like @Patricia Andriolo-Bull did through passive losses

Here's when to do a 1031

-If you're buying more real estate

-If you have profit or depreciation to shelter

-if you want to get away from looming cap ex exposure

-if you want to reposition to a different class or location of real estate

-if you want to move from high appreciation to high cash flow - or vice versa

-If you want to go from active to passive

-If you want to maximize tax benefits of RE investing

-If you want to use the govt's tax for your benefit (shelter $30K of tax for 30 years and at a 10% return you've put $90K more into your pocket)

-If you want to leave a tax-free legacy for your heirs.

Sometimes it doesn't make sense.  Mostly - it does.