1031 Like-Kind Exchanges – What Is It, and Could This Strategy Possibly Be Eliminated?

If you find this article beneficial, please feel free to share it with your family, friends, or colleagues.

If you are interested in learning more about our services at the Financial Consulate, we encourage you to schedule an Introductory Meeting with one of our advisors using the following Calendly link or by calling our office.

• Introductory Meeting Link: Select a Date & Time – Calendly
• Office Phone: 410-823-7283

We kindly ask you to please complete this brief survey after you read the article to provide any feedback you may have or to suggest any future topics that you would like to see us write about. Completion of this survey will enter you into a giveaway of Financial Consulate merchandise.

1031 Like Kind Exchanges – What is it and could this strategy possibly be eliminated?

Are you or someone you know considering selling real estate investment property? Have you or they thought about the tax resulting from the sale because of the property’s appreciation? Depending on the use of the property you may be able to use what is called a 1031 like-kind exchange.

What is a 1031 Like-kind Exchange?

The exchange of real estate property held for productive use in trade or business or as an investment for another real estate property for productive use or investment.

When you use a 1031 Like-kind exchange you can defer up to 100% of your unrealized gain on the property you’re selling and use 100% of the proceeds to purchase a new property. Any real estate property held for productive use or investment can be exchanged for another with the same purpose, whether it is a vacant lot for a multi-family building or exchanging a commercial property for a residential property and vice versa.

Consider a Delaware Statutory Trust –

One option to complete a 1031 like-kind exchange is through a Delaware Statutory Trust (DST). The DST owning real estate allows individuals to pool their money together to invest in  larger real estate projects managed by the DST trustee. The best benefits of using a DST, especially for individuals 70 and older, include handing over day-to-day management, participating in larger projects, and creating a succession plan. Making a 1031 exchange into a DST allows the owner(s) to continue collecting ongoing rental income and leave a legacy to family.

Are the 1031 like-kind exchanges going away?

In 2018, the Tax Cut and Jobs Act eliminated 1031 exchanges for non-real estate assets meeting the same criteria listed above. In 2024, the current administration proposed a budget that included a proposal to eliminate 1031 like-kind exchanges entirely. Republicans are generally in favor of keeping the 1031 exchange, so because they hold the House of Representatives it is unlikely to be eliminated but could be thrown into a bill to get Democratic support. Further, if Democrats gain control of both chambers of Congress and the White House in 2025, 1031s are likely to sit near the top of the list of tax defer strategies to be eliminated.

If you or someone you know is looking to sell a property, consider discussing a 1031 exchange with a fee-only financial advisor. Also, using a CPA that can run projections to be sure there is no recognized gain coming through is highly recommended. Some intermediaries pay commissions to advisors for recommending their company as an intermediary therefore, using a fee-only advisor will allow you to revert that commission back into the new property. Choosing a 1031 like-kind exchange to defer taxes can add significant alpha to your investment return, but it is not right for every situation.

Financial Consulate aims to help lessen the worry and burden of wealth management and enhance financial wellness so our clients can pursue relationships and true fulfillment. Choose the professionals at Financial Consulate as your Certified Financial Planners™ (CFP®) to take advantage of our educational, ethical approach to financial planning. Our services are comprehensive, including tax planning, investment planning, retirement planning, estate planning, and more. We operate completely independently and offer fee-only services to keep your vision in line with our recommendations at all times. While we have offices in Hunt Valley, Maryland, Fernandina Beach, Florida, and Gettysburg, Pennsylvania, we serve clients across the nation. To begin your partnership with a trustworthy wealth advisor, please contact Financial Consulate today.