How to Max Out Your 1031 Exchange

In order to gain the maximum benefits for deferring taxes in a 1031 exchange, you need to be careful about the terms and rules that you follow going forward. You can max out a 1031 exchange by making sure not to have to pay capital gains tax relating to either cash or non-cash considerations received, or improper expenses paid out.

For example, for the purposes of a 1031 exchange, a hotel and its land may comply with IRS regulations but the desks, spreads and lamps within would not necessarily qualify. One key for handling a 1031 exchange is to pay for all personal property separate from real property. You can consult with your qualified intermediary at the initiation of your exchange to learn more about what you need to do in order to follow these rules.

A second key to handling a 1031 exchange properly and getting all of the maximum possible benefits is to recognize what acceptable expenses can be included in your 1031 exchange.

Those that are directly related to acquisition like inspection fees, fees for a qualified intermediary and realtor commission, all can count but you should be aware of potentially unacceptable expenses like long fees, mortgage recording fees and points. As these issues are related to ownership, they are not technically acceptable expenses for the purposes of your 1031 exchange. As always, being knowledgeable about what’s required for a 1031 exchange can make things a lot easier to handle. Consult with a qualified intermediary at the outset of your transaction to ensure you know what to expect.