by Broker Associate Sarah Ashton
Ashton Kirchner Group, Keller Williams Realty
The Situation: You have an investment property which you are selling and wish to shield the gains you have made from taxes. You choose to do a 1031 Exchange* which allows you to sell your existing investment property and to purchase a “like” property of the same price or greater and shield the capital gain from taxes.
The Dilemma: The “like” property you have identified has a value less than the one you are selling so the difference in the prices will be subject to taxes.
The Possible Solution: The 1031 Improvement Exchange
According to 1031 Exchange Place (1031ex.com):
The 1031 improvement exchange is commonly utilized to the benefit of 1031 Exchangers in the following situations:
• The property to be acquired in the exchange is not of equal or greater value to property being sold. In this case, the improvement exchange can eliminate a taxable situation by adding capital improvements to an existing property.
• The new investment is of equal or greater value but it needs refurbishments. Utilize the improvement exchange to refurbish the new property while again using tax-deferred dollars
Recently a client of mine used this 1031 feature to replace the roof, windows and hot water heater in a property she purchased. It did require extra steps with the 1031 company however she got the property she wanted, with upgrades she wanted and shielded all the profit she had gotten from the first investment property. A real win!