Top Five Reasons to Consider a 1031 Exchange this Year

Top 5 Reasons to Consider a 1031 Exchange in 2022

There are few certainties in life other than death, taxes, change, and the Padres blowing it in the 9^th (sorry, Friars fans!). Though most of these are beyond your control, you can still make choices that influence the taxes you pay when selling a property.

If you are considering selling your investment properties, 2022 may be the year to set your plans in motion and consider a 1031 exchange to defer/avoid capital gains taxation upon the sale and purchase of a rental property.[1]

Reason #5 – Now May Be the Peak of The Market

The real estate market has been on a tear, yet savvy investors realize that this trend won’t last indefinitely. We already are seeing economic concerns factoring into asking prices and the “days on market” metric creeping up in many parts of the country—all foreshadowing a shift from a seller’s market to a buyer’s market.  Though there are no soothsayers among us, many believe 2022 may be the best time to sell for maximum ROI.[2]

Reason #4 – Interest Rates for are on the Rise  

Due to inflation, interest rates for mortgages have increased considerably over the past few months. This trend shows no sign of slowing down. The rising interest rate environment is generating concern about the potential impact on investment returns across asset classes. Real estate investors fear that higher rates could undermine property values and operating income by raising discount rates and slowing the economy.

Reason #3 – Regulations and Taxes for Landlords in Left-leaning States Are Not Likely to Improve

Faced with the Covid-19 pandemic, the federal eviction moratorium, and poorly managed aid distribution packages, 2020-2021 were decidedly tough years for landlords. Those in renter-sympathetic states had to overcome tremendous hurdles to collect rent and evict tenants, even those who demonstrated egregious behavior.[3] High taxes and increasingly onerous landlord laws are likely here to stay, making property ownership in these states both less profitable and less enjoyable.[4]

Reason #2 – Maybe the Grass is Greener in Other Markets

While the concerns noted above can have a compounding affect in some markets, the outlook for economic growth and real estate market fundamentals in other parts of the country—or in other asset types—may make it an ideal time to exit one market in exchange for another.  After all, some states continue to have positive demographic growth, job growth and rent growth, with laws that actually protect landlords rather than attack them.

Reason #1 – Congress Hasn’t (Yet!) Interfered with the 1031 Exchange Law

As part of President Biden’s 2023 budget, the administration proposed severe limitations to 1031 exchanges. While the bill that ultimately was passed didn’t make any adjustments to these long-standing provisions in the tax code, there is no guarantee of when 1031 exchanges could end up in the crosshairs again.

For more information about tax-advantaged securitized real estate investments, please call 1031 Capital Solutions at 1-800-445-5908 or visit our website, 1031capitalsolutions.com.

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This is for informational purposes only, does not constitute as investment advice, and is not legal or tax advice. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. Please consult the appropriate professional regarding your individual circumstance.

Statements concerning financial market trends are based on current market conditions, which will fluctuate. Past performance and forecasts do not guarantee future results.

This material is not to be interpreted as tax or legal advice. IRC Section 1031, IRC Section 1033 and IRC Section 721 are complex tax concepts; therefore you should consult your legal or tax professional regarding the specifics of your particular situation.

 There are material risks associated with investing in real estate including illiquidity, general market conditions, interest rate risks, financing risks, potentially adverse tax consequences, general economic risks, development risks, and potential loss of the entire investment principal.

The data contained in this material was obtained from third-party sources believed to be reliable; however, 1031 Capital Solutions, CIS, and CAM do not guarantee the accuracy of the information. As of 9/9/2022.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC-registered investment adviser. 1031 Capital Solutions is independent of CIS and CAM.

[1] What Is a 1031 Exchange? Know the Rules. Investopedia.com, July 19, 2022

[2] Is the housing market about to crash? Here’s what experts are saying. Bankrate, Aug. 10, 2022

[3] Democrats should ease up on landlords, Yahoo! Finance, August 3, 2021.

[4] The Worst States for Landlords, Bay Property Management Group, June 3, 2021.