Potential Benefits / Risks of an §1031 Exchange

Benefits: 

• Defer federal and state capital gains tax as well as depreciation recapture tax indefinitely.

• Exchange from a fully depreciated property to a higher value property that can be depreciated.

• Exchange from a property that cannot be refinanced, nor generates income. i.e. moving from vacant land to improved property, property with a building can support a refinance loan, or generate cash flow to the owner.

• Exchange from a property with low or negative cash flow (single family residence with large mortgage) to a property with potentially higher cash flow that may be tax sheltered through depreciation.

• Exchange to fit lifestyle of property owner, i.e. a retiree may exchange for a property requiring little or no property management responsibility so he or she can do more traveling.

• Exchange as an estate building tool. Heirs may inherit the cash flow without the property management responsibility.

• Diversify your real estate holdings by exchanging into more than one property in more than one geographic location.

Risks: 

• Not following IRS guidelines for §1031 resulting in a failed exchange. For example, if a replacement property is not identified within 45 days of the close of escrow of the original property, the exchange will be failed resulting in a taxable event.

• Not choosing a reputable Qualified Intermediary. We recommend Nationally recognized QI firms associated with large Title Companies

• Not finding a replacement property equal or greater in value thereby generating 'Boot' which is also a taxable event.

• Tax law change could result in tax liabilities, penalties, or reduction or elimination of expected tax benefits.

AMBAR Financial Group does not offer legal or tax advice. AMBAR encourages clients and visitors to seek independent legal and tax advice from competent professionals to discuss their personal financial situations. Registered Representatives may only transact business in states where they are registered, or exempt from registration. Currently we have Representatives registered in: AL, AZ, CA, FL, MN, MO, PA, TX. If your resident state is not listed, please contact us at 408-379-6510. Under normal circumstances, securities licensing procedures for additional states may take 24-72 hours. We will not effect or attempt to effect securities transactions, or provide personalized investment advice to, or communicate directly with residents in a state in which a Representative is not registered.

Property photos shown here are being provided for educational purposes only, to illustrate the different property types available in the real estate market. These photos are not intended to represent any particular type of TIC offering nor are they intended to represent any current or future TIC offerings.