1031 Exchanges Gain in Popularity After Rise in Property Values

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Real Estate Broker Vik Vad Explains Advantages of Tax Deferred Swaps

With limited inventory on the market, and both residential and commercial property going under contract very soon after being listed, prices in Central Texas have gone up by double digits over the past two years, according to the Austin Board of Realtors. And with rising real estate values comes sizable capital gains taxes upon the sale of such properties, something that has caught the attention of astute investors looking to minimize this burden. 1031 exchanges are one solution that are once again allowing investment property owners to defer both capital gains as well as depreciation recapture taxes when selling one property and purchasing another.

The "1031" refers to a section of the Internal Revenue Code, under which, if done properly, allows a qualified intermediary to hold funds from the sale of one property, and apply these funds towards the purchase of another. Strict time parameters must be met, and the investor cannot touch the funds in the meantime. The new property must be of "like kind", which simply means real estate for other real estate. "We get calls all the time from people who think the like kind provision means they must buy another apartment building if they just sold an apartment building," states Vik Vad, a real estate broker with Cantera Real Estate. "No. Not true. They can buy vacant land, or an office building, or a single-family home, provided it is rental property and not their residence. They cannot exchange the apartment building for a business venture, or for stocks and bonds."

A 1031 exchange can accomplish a variety of things for a real estate investment portfolio. "From large institutions looking to diversify their holdings, to individuals looking to get in to the hot Austin market, to average people selling a few rental condos so that they can consolidate and purchase one larger property, we tailor a solution for each client," explains Vad. With the rapid growth in the greater Austin area, due to the high quality of life, the trend in rising property values, and need for 1031 exchanges is likely to continue into the foreseeable future.

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Vik Vad

+1 (512) 786-7931
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