Unlocking Income Growth Potential: 7 Tax Deferring Strategies

We are pleased to introduce Bill Exeter, CEO of Exeter 1031 Exchange Services, LLC as one of our nationwide investment expert partners. As a leading national provider of comprehensive 1031 Exchange services, Bill Exeter has contributed the following article from his 1031 Exchange Guidebook on our website to provide valuable insights for investors in the area of 1031 Exchanges.

Which is best for you?

The sale of investment real estate could mean you have to recognize ordinary income, capital gain, depreciation recapture, possible state income, and Medicare Surcharge (“Obamacare tax”) income tax liabilities. Tax deferral and tax exclusion strategies can effectively reposition or rebalance your investment real estate portfolio to accomplish any number of financial, tax or estate planning objectives while deferring or excluding Federal, and in most cases, state income tax liabilities. 

It is important for you to be familiar with the various tax-deferral and tax-exclusion strategies available to ensure you choose the most appropriate strategy for your situation. 

At Exeter 1031, we always urge our clients to consult with their legal, tax and financial advisors in order to determine which tax-deferral or tax exclusion strategy would be most suitable and appropriate for them. Investment decisions should always factor in more than just income tax considerations.

1031 Exchange (Investment Property)

Section 1031 of the Internal Revenue Code allows you to exchange real property that was held for rental, investment or business use (“relinquished property”) for other real property that will also be held for rental, investment or business use (“replacement property”). This enables you to defer the payment of your ordinary income, capital gain, depreciation recapture, possible state income, and Medicare Surcharge (“Obamacare tax”) income tax liabilities.

1033 Exchange (Involuntary Conversion)

Section 1033 of the Internal Revenue Code provides that real or personal property subject to an involuntary conversion, either from an Eminent Domain proceeding (condemnation by the government) or destruction by a natural disaster, such as an earthquake, hurricane or fire, can be exchanged on a tax-deferred basis for “like-kind” real or personal property that is similar or related in service or use.

1034 Exchange (Repealed)

Section 1034 of the Internal Revenue Code was repealed and replaced by Section 121 (see following) in 1997. The 1034 Exchange allowed you to sell your primary residence and defer or “rollover” your capital gain by acquiring another primary residence of equal or greater value.

121 Exclusion (Primary Residence)

The Taxpayer Relief Act of 1997 repealed and replaced the tax-deferral “rollover” provision of Section 1034 with the tax-free exclusion under Section 121 of the Internal Revenue Code. Generally, you can sell your primary residence and exclude from gross income up to $250,000 in capital gains ($250,000 per taxpayer, $500,000 for a married couple). You must have owned and lived in the property as your primary residence for at least a total of 24 months out of the last 60 months.

453 Installment Sale (Seller Carry-Back Note)

Section 453 of the Internal Revenue Code allows you to sell real property and help your buyer finance the purchase of your property by carrying back an installment note (“seller carry-back financing”) while deferring the recognition and payment of your capital gain income tax liability until you receive principal payments.

721 Exchange (upREIT or 1031/721)

Section 721 of the Internal Revenue Code allows you to exchange investment real estate for an interest in a Real Estate Investment Trust (“REIT”). This is also referred to as an upREIT, or 1031/721 Exchange.

Qualified Opportunity Zone Funds

The Tax Cuts and Jobs Act of 2017 created a new tax deferral and tax exclusion strategy referred to as the Qualified Opportunity Zone Fund or QOZ. Generally, the QOZ allows you to defer the current capital gain from the sale of real or personal property to December 31, 2026, and to exclude the new capital gain resulting from the investment in the QOZ if held for at least ten (10) years.

We hope the insights provided by Bill Exeter of Exeter 1031 Exchange Services, LLC in this article have been informative and beneficial. We at CBC Capital Advisors are proud to partner with such a distinguished firm. Together, we are committed to facilitating a seamless 1031 exchange process for our clients. Our collaboration ensures that you receive comprehensive support and guidance, making your exchange experience as smooth and efficient as possible.

For the past 40+ years it has been our honor and pleasure to help clients achieve their investment goals through commercial real estate investing through…

  • Our Exclusive Nationwide Investment Network
  • Off-Market Commercial Real Estate Opportunities – Nationwide
  • and Saving Taxes with 1031 Exchanges

To Learn More, Give CBC Capital Advisors a Call at (806) 793-0888

In addition, you can learn all about our exclusive nationwide investing network and capabilities by watching Rick Canup’s short investment presentation below.