The South Coast Real Estate Round-Up

Understanding a 1031 Exchange

Real estate investment can be a highly profitable venture, but it often comes with significant tax liabilities. Fortunately, the Internal Revenue Code provides a mechanism known as a 1031 exchange that allows investors to defer capital gains taxes on the sale of investment properties. This tool can be incredibly beneficial for those looking to grow their real estate portfolio without the immediate burden of tax payments.

What is a 1031 Exchange?

A 1031 exchange, named after Section 1031 of the Internal Revenue Code, is a tax-deferral strategy that enables real estate investors to sell one investment property and reinvest the proceeds into another like-kind property. The primary advantage of a 1031 exchange is the ability to defer capital gains taxes on the sale, thereby preserving more capital for reinvestment.

To qualify for a 1031 exchange, the properties involved must be held for business or investment purposes. Personal residences do not qualify. Additionally, both the relinquished property (the one being sold) and the replacement property (the one being acquired) must be of like-kind, which the IRS broadly interprets as any type of real estate held for investment.

 Benefits of a 1031 Exchange

  1.  Tax Deferral: The most immediate benefit is the deferral of capital gains taxes, which can be substantial. By deferring these taxes, investors can use the full sale proceeds to purchase new properties, enabling greater investment power.
  2.  Portfolio Growth: Investors can continually defer taxes by using 1031 exchanges repeatedly. This allows for the strategic reinvestment of gains, facilitating the growth of a real estate portfolio over time without the erosion of capital through taxes.
  3. Diversification: A 1031 exchange allows investors to diversify their holdings by exchanging properties in different geographic locations or property types, as long as they are like-kind.
  4. Increased Cash Flow: By swapping less profitable properties for more profitable ones, investors can potentially increase their rental income and overall return on investment.
  5. Estate Planning: When properties acquired through 1031 exchanges are passed on to heirs, they receive a step-up in basis, potentially eliminating the deferred capital gains tax altogether.

 The 1031 Exchange Process

Engaging in a 1031 exchange requires careful planning and adherence to strict timelines and rules. Here’s a general overview of the process:

  1. Identify a Qualified Intermediary: Before selling the relinquished property, it is crucial to engage a Qualified Intermediary (QI), who will facilitate the exchange. The QI will hold the proceeds from the sale and use them to purchase the replacement property. 
  2. Sell the Relinquished Property: The sale of the current investment property is completed with the QI holding the proceeds to ensure compliance with 1031 exchange regulations.
  3. Identify Replacement Property: Within 45 days of the sale, the investor must identify potential replacement properties. The identification must be in writing and submitted to the QI. There are specific rules about the number and value of properties that can be identified.
  4. Purchase the Replacement Property: The replacement property must be purchased within 180 days of the sale of the relinquished property. The QI will use the proceeds from the original sale to complete this purchase.

Importance of a Qualified Intermediary

A Qualified Intermediary is essential in a 1031 exchange for several reasons:

  1. Regulatory Compliance: The IRS mandates the use of a QI to hold the proceeds from the sale and to purchase the replacement property. Direct access to the funds by the investor will disqualify the exchange.
  2. Expert Guidance: A QI provides valuable expertise and guidance throughout the exchange process, ensuring all IRS requirements and deadlines are met. This minimizes the risk of errors that could disqualify the exchange.
  3. Documentation and Record-Keeping: The QI manages all necessary documentation and keeps meticulous records of the transaction, which is crucial for tax reporting and potential audits.
  4. Facilitation of Transactions: By handling the funds and managing the timeline, the QI allows the investor to focus on finding suitable replacement properties and making sound investment decisions.

A Powerful Strategy

A 1031 exchange is a powerful strategy for real estate investors seeking to defer capital gains taxes, grow their portfolios, and maximize their investment potential. However, the complexity of the process and the strict IRS requirements necessitate the involvement of a Qualified Intermediary. With proper planning and professional guidance, a 1031 exchange can be an invaluable tool in achieving long-term investment goals and financial success.

Navigating the intricacies of a 1031 exchange can be daunting, but with the right guidance and expertise, you can unlock significant financial benefits and growth opportunities for your real estate investments. At E Z Home Search Real Estate, we are committed to helping you understand and take full advantage of 1031 exchanges. Our experienced team is here to provide you with detailed information, connect you with trusted Qualified Intermediaries, and assist you in finding ideal replacement properties that meet your investment goals.

Don't miss out on the potential to defer taxes and enhance your real estate portfolio. Contact E Z Home Search Real Estate today to learn more about how a 1031 exchange can work for you and to get started on your next successful investment journey. 

Posted by Christopher Terry on June 6th, 2024 9:34 AM

The Federal Reserve's rate hikes may not yet have had an impact on the RED-HOT Fall River Multi-Family home market. Where it is having an impact is transaction volume!

Even with mortgage rates more than double the lows of 2021, the lack of inventory continues to support home values.

Year over year median sales price for multifamily homes on Fall River MA is up over 16 percent from May 2022.

Median days on market is up slightly to 22 days. While the list to sales price ratio was down slightly but still at 100%.

The place where the recent interest rate hikes have had an impact is transaction volume.

Listing volume is down over 15%. Units that went pending was down over 33% and units sold was also down over 33%. And possible insight into things to come, pending sales are down almost 40%.

Fewer homes, and fewer buyers that qualify at today's current prices results in fewer transactions. Or course, all real estate is local, so let us know if you would like to know more about what is happening in your neighborhood and if you like these updates, please like and subscribe so you can stay in the know.


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Posted by Christopher Terry on June 10th, 2023 1:19 PM

Investors still see opportunity in the Fall River multi-family home market pushing the year over year median sales price up more than 20% over the last year.  

From March 2022 to March 2023 Fall River saw the median sales price of multi-family homes appreciate by 20.45%. This is on top of the 15% appreciation seen from 2021 to 2022. 

To add fuel to the fire there were just 72 multi-family homes listed so far this year, down 27% from last year.  

With the months of supply remained steady at .66 months.  

Although higher mortgage rates have reduced the buyer traffic, the opportunities in Fall River continue to attract both owner-occupied multi family homeowners and investors.  

Of course, all real estate is local, so let us know if you want to know more about what is happening in your neighborhood and if you like these updates, please subscribe so you can stay in the know. 


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Posted by Christopher Terry on April 28th, 2023 3:31 PM

February’s median sales price for a multi-family Home in Fall River Ma jumped 17.25% from the previous February. 

In February there were 36 multi families sold and closed with a median sales price of $521,771. 

That’s up 17.25% compared to the previous February when there were 53 units sold and closed with a median sales price of $445,000. 

Months of supply jumped 60% to 1.06 months. Still well below a balanced market. 

It’s interesting to note that multifamily homes that are active on the market have a median days on market of 97 days. While for multifamily homes that are currently under agreement the days on market is just 16 days. 

This indicates that as long as you are price appropriately there are eager buyers actively looking. 

Of course, all real estate is local, so let me know if you want to know more about what is happening in your neighborhood and if you like these updates, please like and subscribe so you can stay in the know. 


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If you've thought about buying - now, or in the near future - and you want to ensure that the experience is smooth and easy as possible, this guide is for you! 

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  • 10 Things to Consider When Choosing Your New Home
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Posted by Christopher Terry on March 18th, 2023 3:05 PM

This is your market in a minute for multi-family homes year end 2022 in Fall River MA.

Lack of inventory continues to plague the Fall River multi-family housing market with 2022 seeing a reduction in the number of multi-family home listed for sale by 20% from the previous year further fueling the pricing appreciation.

The average selling price for a multi-family home jumped almost 19% from 2022 to $524,000 with an average price of $157 per square foot.

Fewer listings, coupled with higher interest rates, resulted in the number of closed transactions dropping 26.5%, from 468 in 2021 to 344 in 2022.

Months of supply, although still strongly in the sellers' market jumped 85% to 1.5 months' supply over the previous year.

It's going to be interesting to see how this plays out in 2023 with raising rates and lenders tightening financing coupled with low inventory. 

Of course, all real estate is local, and this is only for Fall River MA, so let me know if you would like to know more about what is happening in your neighborhood, community or town.  And if you like these updates. please subscribe so you can stay "in-the-know".

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Posted by Christopher Terry on January 18th, 2023 5:17 PM

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