1031 Basics: What Is "Basis?"

Understanding basis is the first step in conducting a successful 1031 exchange.

A property’s “basis” is the amount of capital that the IRS considers an owner to have in a given property. Basis is usually the property’s purchase price or, in the case of bequeathed property, its fair market value at the time it was acquired or inherited.

So why is basis important for 1031 exchanges? Basis is used to calculate depreciation and capital gains or losses. For example, if a property’s basis is $1,000,000 and it sells for $1,200,000, the capital gains is $200,000 ($1,200,000-$1,000,000 = $200,000).

Determining your basis is the first thing you should do when you are considering a trade up in investment real estate.

To find out how we can help you find and close on your next 1031 exchange property or to learn more about the exchange process and our qualified intermediary services, please visit our website.