Drew 2: 4 quick facts on 1031 Exchanges

27 Jul 2023 · 2 min

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In this short video, Drew explains the essential aspects of a 1031 exchange, a tax provision that allows investors to defer long‑term capital gains when selling real estate, provided they meet strict requirements. He outlines four key facts: (1) the exchange must involve high‑value, qualifying real estate—not flips or primary residences—because the tax benefit only makes sense for substantial gains; (2) the proceeds must be reinvested into income‑producing property, not used for personal travel or other non‑investment purposes; (3) a qualified 1031 administrator must handle the transaction, holding the sale proceeds in a separate escrow account and ensuring compliance with the rules; and (4) the investor has rigid timelines—45 days to identify replacement properties and 180 days to close—making timing critical. Drew emphasizes that a 1031 exchange is a deferral, not a loophole, and stresses adherence to the law.

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Hey now, Drew 2 time. Hey, I'd like to continue our discussion about 1031 exchanges. This is where we defer our long-term capital gains tax when we sell real estate. We're not avoiding it, we're deferring it. We can defer it to a point where I don't pay it, but I'm not avoiding, I'm just deferring, and it's a huge benefit for me. 4 quick facts about 1031 exchanges. Fact number 1, I need to have the right real estate. It's got to be worth doing it on. So a flip doesn't qualify. Your primary home, eh, you don't need it. You don't even have to pay capital gains in most scenarios. Or if you're selling a property and it's only netting you $5,000, there's no reason to pay a 1031 exchange to avoid 15% capital gains tax. We're talking about big numbers, hundreds of thousands of dollars. Now a 1031 exchange, it has huge potential for me. As long as I do fact number 2. I got to commit to buying more real estate, income-producing real estate. I can't just take the money and sail around the world. I have to commit to buying more income-producing real estate, which is what I want. Fact number 3, you need to have a 1031 administrator. You cannot do this on your own. Your 1031 administrator teaches you all the rules, puts all of the funds into a separate account from closing when you sell your property, And those get applied. You don't even touch the funds. That's the rules. And then the 4th fact that I want you to be aware of: 45 and 180. You've got 45 days to identify your properties and 180 days to close on them. So if you've found a property that's a new build home and the builder's taking long, they don't meet this, you lost. There is no wavering on this. Remember, this is not a Tax loophole. This is tax law. 45 and 180. Hope these 4 quick facts make sense. Thanks for watching today's Drew 2 on 1031 exchanges. We'll talk with you soon.