• Skip to main content
  • Skip to primary sidebar

Cade Hildreth

Little Known Hacks I Learned Making My First Few Million

MENUMENU
  • Finance
    • Investing
    • Increasing Income
    • Entrepreneurship
    • Financial Q&A
  • Real Estate
  • Fitness
    • Nutrition
    • Nutrition Q&A
  • LGBTQ+
    • Confidence
  • Podcast
    • Audio Feed of the Website
    • "What You Should've Been Taught"
  • Testimonials
  • About
    • Shop
    • About Cade
    • Rugby Bio
    • Instagram
    • Coaching
    • Contact
You are here: Home / Finance / What is a 1031 Exchange (And How Does It Generate Wealth)?
What is a 1031 Exchange (And How Does It Generate Wealth)?

What is a 1031 Exchange (And How Does It Generate Wealth)?

September 1, 2020 By Cade Hildreth Leave a Comment

How would you like to build your personal wealth faster?

If you’re taking advantage of the burgeoning real estate market, you may be wondering how to scale up without getting penalized by Uncle Sam.

Between income generation and appreciation, real estate can build lasting wealth more reliably and consistently than other investments. But how do you grow your portfolio in the most cost-effective way?

Read on to find out how a 1031 Exchange can help you invest in income-generating properties on a larger scale than before.

What is a 1031 Exchange?

A 1031 Exchange, sometimes called a “like-kind” or Starker exchange, allows you to sell an investment property and defer the capital gains tax to invest in a replacement property.

Depending on your income, capital gains can strip you of as much as 20% of the profit from your investment.

Here’s a quick summary of the various types of 1031 exchanges.

1. Simultaneous Exchange

A 1031 Exchange can be a real swap of properties: Two investors simply swap properties of equal value with neither paying the tax. This isn’t a common occurrence, however.

2. Delayed Exchange

A delayed exchange lets you sell your property and then find another one to purchase, while still deferring the tax. In a delayed exchange, you have 45 days to find and identify a new investment property and up to 180 days to close the sale.

3. Reverse Exchange

If you have cash for your next investment, you can do a Reverse Exchange and still defer the capital gains tax. In this case, you purchase your new investment before selling the old one.

The benefit is the same — you can still defer the capital gains tax. On the downside, you have to have the cash upfront and need to sell the original property within the 180-day window.

1031 Exchange Rules 2020

Like any process under the auspices of the IRS, there are a few important 1031 Exchange rules. There are also some newer restrictions.

1. Equal or Higher Value

The most important of the 1031 Exchange rules applies to the value of the properties. The new property must be of equal or higher value than the property sold.

2. Like-Kind

To qualify for the deferment, both properties must be of “like-kind.” That means similar in nature, such as swapping an apartment complex for a rental duplex.

You can even exchange one apartment building for two single-family homes, as long as the newly acquired properties together are of equal or higher value and both are used as investments.

New Rules

New regulations limit the type of exchanges acceptable under 1031.

Previously, deferments applied to the sale of businesses and non-real estate assets. The like-kind rule meant that you could only exchange a business for a business or real estate for real estate.

As of January 1, 2018, however, tax deferrals are only available for like-kind real estate exchanges under 1031.

3. Same Tax Payer Rule

To comply with 1031, the taxpayer must be the same on the old property as on the new one. There is a handy workaround, however, for sole-proprietor LLCs. If you were the sole owner of a property, you can transfer the replacement property to your sole proprietor LLC.

4. Qualified Intermediary

In order to qualify for a 1031 Exchange tax deferment, the capital from the sale of the original property must be held by an independent third party, called the Qualified Intermediary or QI.

Generally, this is a fiduciary firm that holds the proceeds on account, similar to an escrow account. Once the purchase property has been identified, the QI will disperse the funds at closing.

What are the Benefits of a 1031 Exchange?

When you do an exchange, you can defer the capital gains tax on any investment property you sell and invest them into expanding your portfolio. This gives you more equity in your new investments.

If you’re considering getting into the house-flipping game, following the 1031 Exchange rules can keep more of your money working for you.

A 1301 Exchange also allows you to take advantage of real estate trends. If the market in your current investment has leveled out, you can sell and invest your money into property in an up-and-coming neighborhood.

You can also change the nature of your investment without getting penalized by the capital gains tax. You can take on new business opportunities, such as selling one of your single-family rentals to purchase vacation rentals.

How Does It Build Wealth?

By deferring the capital gains tax on the sale of your investment properties, you retain more equity in your purchase. So, when it’s time to sell your property, you’ll see more cash on the table.

That can be a critical difference if you rely on mortgages to invest in real estate. The amount of interest you pay the bank is based on how much you borrow, not on the sale price. So, if you can walk into new investments with more money upfront, you’ll save on financing.

And if you’re building a portfolio of income properties, deferring capital gains taxes lets you scale up in doable increments. With more money down, you can widen your net when it comes to buying new properties.

So, When Do You Pay Tax?

Nothing good lasts forever, so, of course, you’ll eventually pay taxes. Internal Revenue Code, Section 1031 allows you to defer the payment of capital gains taxes until you sell the replacement property.

You may also pay it with increased income taxes as part of depreciation recapture if you’ve been using depreciation as a deduction. Should you sell the property for more than the depreciated value, the difference becomes taxable income. This is calculated separately from your capital gains tax.

Capital gains taxes may also come due as a tax on an estate after the owner’s death.

Simple Steps for a 1031 Exchange

The process seems overwhelming, but you can break it down into a few simple steps:

  1. Market and sell your existing investment property
  2. Entrust your gains with a QI
  3. Find a like-kind investment property within 45 days
  4. Make an offer on the new property and negotiate a contract
  5. Have your QI disperse funds to the seller of the replacement property
  6. Fill out a Form 8824, Like-Kind Exchanges, for the IRS

Money Bags Only?

You don’t have to be a real estate mogul to take advantage of the 1031 Exchange tax deferment rule. Between 2011 and 2014, 48% of 1031 transactions involved individual investors.

The 1031 like-kind Exchanges is perfect for small business and investors. The ability to re-invest what would have gone to the IRS can provide real purchasing power while building your portfolio.

Read to learn more about building wealth with real estate? Check out this Ultimate Guide to get started.

Do you have questions about the 1031 exchange and how to use it? Ask them in the comments below.

Are we connected yet on social media? If not, let’s make it happen: Instagram | Twitter | Facebook | Pinterest

5 / 5 ( 6 votes )

Share this:

  • Click to share on Twitter (Opens in new window)
  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)

Filed Under: Finance Tagged With: real estate

Reader Interactions

Tell Us What You Think! Cancel reply

Primary Sidebar

  • Instagram
  • Twitter
  • Facebook
  • LinkedIn
  • Pinterest

Cade Hildreth“As an LGBTQ+ entrepreneur, real estate investor, former USA Rugby Player, and fitness fanatic, I’ll teach you what your parents and teachers should’ve taught you, but didn’t know themselves.” -Cade Hildreth

Want to know what I learned making my first few million? Subscribe here.

Or, listen to Cade’s articles on the go as a Podcast.

cadehildreth

It’s official...I’m never going to the gym aga It’s official...I’m never going to the gym again...LOL!!! 🤯🏳️‍🌈🏳️‍⚧️
.
.
.
.
.
#lgbtqia #lgbtqplus #lgbtqpride #lgbtcommunity #nonbinary #nonbinarypride #genderqueer #genderfluid #androgynous #androgyny #bigender #genderless #genderneutral #genderbend #lgbtfitness #queerfitness
⚠️ One of the most important TRUTHS I’ve lea ⚠️ One of the most important TRUTHS I’ve learned was this:When you give yourself permission to be yourself, you give other people permission to be themselves.If someone is upset by you being fully yourself — whether that is gay or straight or gender expansive or in a relationship with someone your family disapproves of or anything else — it is sad for them, because what they are saying to you is, “I don’t believe I have permission to do what you are capable of doing.”When you realize this, the only reaction you can have toward them is compassion.Share a “💯” below if you’ve experienced this (or needed this reminder today)...👇🏽
.
.
.
.
.
#lgbtq🌈 #lgbtqpride #queerlife #nonbinary #nonbinarypride #genderfluid #genderqueer #genderbend #trans #transgender #androgynous #androgyny #ftm #mtf #tomboy #tomboys #genderexpression #authenticity #authenticself #authenticliving #trueself #theythem
⚠️ UPDATE: Arkansas' Republican governor on Mo ⚠️ UPDATE: Arkansas' Republican governor on Monday vetoed an anti-transgender health care bill that would've prohibited physicians in the state from providing gender-affirming "procedures" for trans people under age 18.Gov. Asa Hutchinson told reporters that he killed HB 1570 because the bill "would be and is a vast government overreach" and because it would've created "new standards of legislative interference with physicians and parents as they deal with some of the most complex and sensitive matters involving young people."Had the governor approved it, Arkansas would've been the first state in the nation to outlaw gender-affirming health care for trans youth, according to the American Civil Liberties Union.The governor also predicted during his remarks that the state's Republican-controlled General Assembly "will likely override" his veto, noting it takes only a simple majority to do so.Leave a “👏🏽” to show support for Governor Hutchinson or share your thoughts below. 🏳️‍🌈🏳️‍⚧️Source: CNN
.
.
.
.
.
.
#lgbtqia #lgbtqi #lgbtqpride #lgbtplus #lgbtqplus #nonbinary #nonbinarypride #trans #transgender #transboy #transgirl #transyouth #transman #transwoman #ftm #mtf #intersex #genderless #genderneutral #genderqueer #genderfluid #bigender #humanrights
✅ #WorkoutTip: If you’re looking to get a more ✅ #WorkoutTip: If you’re looking to get a more developed and defined chest, a quick bar change from traditional barbell to Swiss Bar can help you hit new muscle fibers and supercharge your gains! 🔥💪🏽Why is this? 🤔1) As you can see, it switches your grip from horizontal (your grip on a straight barbell) to parallel. This rotates your entire arm, including the position of your elbow, shoulder, and all of the attached muscle groups.2) It lets you choose from a wide variety of widths. In this example, I choose the second from the middle grip, but you can work from extremely narrow to really wide.3) The balance/loading of the Swiss Bar feels extremely different than a straight barbell, so your accessory muscles get recruited to work extra hard throughout the path of the lift.Of course, if you add a pause at the bottom of the lift as the Swiss bar touches your chest, it can also increase the difficulty of the lift and introduce a new stimulus.Have you tried a Swiss Bar before? Let me know below... 👇🏽
.
.
.
.
.
#lgbtqia #lgbtqpride #lgbtpride #nonbinary #nonbinarypride #androgynous #genderqueer #genderqueerpride #genderless #genderneutral #lgbtcommunity #queers #lesbians #gays #trans #transgender #intersex #tomboys #tomboylife #fitnesstips #fitnesstip #theythem
.
.
——
Are we connected yet on TikTok? If not, let’s make it happen, so I can share in your world too. 😁
——
Looking to add lean muscle mass while dropping bod Looking to add lean muscle mass while dropping body fat? 💪🏽🔥If so, you’re simply not going to beat the BIG compound lifts like the deadlift. 🔥🔥But, since the traditional deadlift puts a fair amount of strain on your lower and middle back, what should you do if you’re training multiple times per week? 🤔The answer? 👀1. Mix Up the Stimulus — The Hex Deadlift shown here is one of my favorite options, because it allows a more upright torso. This both lets you lift more weight and displaces some of the load across your hips and lower body.However, if you can’t access a Hex Deadlift bar at your gym, then you can use a normal barbell to do a...... Sumo Deadlift (wider stance)
... Deficit Deadlift (deeper range of motion)
... Or other variation of your choosing2. Vary Your Rep Range - In this video, I demo a higher rep range of 20 reps. In general, higher reps are associated with greater hypertrophy (muscle size growth).Higher reps will humble you because you’ll have to use less weight, but the muscle gains you experience will make it worth it!3. Amp Up Recovery - The two most powerful recovery tools you have at your disposal are food and sleep. So, how to best use them to your advantage?Consume whey protein and rapidly digestible carbs immediately post workout—and if you went heavy in your workout, then add a casein protein shake before bed too.Then, eat a full meal within approximately an hour of finishing your workout. Focus on consuming protein and carbs, while going lighter on fat.For sleep, nighttime is your anabolic period (i.e., when natural muscle recovery and growth occurs).So, get to bed either at or before your usual bedtime, keep the room ultra dark, and keep it cold enough that you need to be under the covers or you’ll end up shivering.I wear an @ouraring sleep ring and can confirm from personal experience that timing, temp, and darkness all have a huge effect on your sleep quality!Which tip are you going to try first? Let me know below... 👇🏽
.
.
.
.
.
#nonbinary #nonbinarypride #queerpride #genderqueer #genderfluid #genderless #queers #gays #lesbians #tomboys #trans #androgyny #fitnesstips #workouttips
To all my trans, nonbinary, and gender-expansive s To all my trans, nonbinary, and gender-expansive siblings:💙 You are valid.
🤍 You are worthy.
💗 You are loved.Thank you for becoming who you were born to be, because you inspires others to be their true selves too.Always remember: Courage is contagious.Happy #TransDayOfVisibility—
From @qchristianorg:Being visible is important for the movement. For the individual, being visible can mean being one of the 20% of trans people who experience homelessness or the 25% who have been fired because of their gender identity.It could make you one of the 44 trans people who were killed last year for being trans.Being visible means risking rejection and abandonment, facing erasure in the name of religious freedom, being ridiculed, mocked, bullied and misgendered intentionally.It can mean being one of the 41% who, because of all this, attempt to end their lives.
—
.
.
.
.
.
.#lgbtqia #lgbtqi #lgbtqiaplus #nonbinary #nonbinarypride #trans #transgender #transisbeautiful #transpride #intersex #genderqueer #genderfluid #genderless #genderneutral #bigender #intersex #ftm #mtf #transman #transwoman #transboy #transgirl #transyouth #queerlife #gendernonconforming #genderexpansive #tdov #theythem
Load More... Follow on Instagram

Recent Posts

Gender Spectrum

The Gender Spectrum: A Scientist Explains Why Gender Isn’t Binary

Types of investments

15 Types of Investments (And How They Work)

tax deduction examples

Top 6 Tax Deduction Examples You Probably Didn’t Know About

sell your home quickly

7 Tactical Tips on How to Sell Your House Quickly

Categories

  • Confidence
  • Entrepreneurship
  • Exclude
  • Finance
  • Fitness
  • Increasing Income
  • Investing
  • LGBTQ+
  • Nutrition
  • Real Estate

Contact Us | Terms of Use | Privacy Policy

COPYRIGHT © 2019 · CADEHILDRETH.COM | PHONE: ‪(202) 660-4705‬  | 800 CORPORATE DRIVE, SUITE 301, STAFFORD, VA 22554, USA

 

*Disclaimer: Nothing on this site should be construed as medical, health, or financial advice. Before making any health decisions, you should consult with your doctor. Before making any financial decisions, you should consult with professional adviser, such as a financial planner or CPA.