If you’re considering a 1031 exchange strategy, understanding the fundamentals and avoiding common pitfalls can save you thousands in taxes and prevent disqualification. This masterclass covers everything from the basic 1031 exchange timeline—including the critical 45-day identification window and 180-day closing deadline—to advanced strategies like partial exchanges.

Hosted by RealWealth and featuring Asset Preservation, Inc., a nationally recognized qualified intermediary, this masterclass will walk you through everything you need to know about IRS Section 1031 exchanges, including how to complete a partial 1031 exchange if you want to defer some taxes while cashing out a portion of your equity.

Whether you’re an experienced investor or just starting to grow your portfolio, this session will help you unlock new tax-efficient strategies and make smarter decisions with your investment properties.

What You’ll Learn in This 1031 Exchange Masterclass Webinar:

• What is a 1031 exchange, and how does it work?
• Who qualifies for a 1031 exchange, and what types of properties are eligible?
• Key 1031 exchange rules, timelines, and IRS compliance requirements.
• What is a partial 1031 exchange, and when does it make sense to use it?
• Common mistakes to avoid when initiating an exchange.
• A side-by-side case study: selling a property vs. completing a 1031 exchange.
• Live Q&A with a seasoned 1031 exchange qualified intermediary.

A 1031 exchange isn’t just about deferring taxes. It’s a strategic way to reinvest gains, increase cash flow, and build scalable wealth through real estate. Whether you’re exchanging one property or several, or considering a partial exchange for flexibility, this masterclass will give you the tools and insights to get it right.

• Real estate investors planning to sell an investment property
• Landlords in high-tax states looking to increase cash flow
• Investors who want to diversify from one property into multiple properties
• Anyone considering a 1031 exchange from California to other states
• Experienced investors exploring partial exchanges or advanced strategies

• Stephanie from Asset Preservation, a leading national qualified intermediary with 35 years of experience and over 200,000 completed 1031 exchanges, introduces the topic.
• Participants are encouraged to ask general questions via the Q&A box; detailed personal advice should be sought from a tax professional.
• The webinar’s purpose is to provide broad education about 1031 exchanges.

• Definition: A 1031 exchange allows deferral of capital gains taxes on the sale of investment or business-use real estate when exchanged for “like-kind” property.
• 1031 exchanges have been part of tax code since 1921 but are increasingly used.
• Benefits include tax deferral and reinvestment to grow investment portfolios.
• Options for clients on property sales:
  • Hold property and wait for market changes.
  • Sell and pay capital gains tax.
  • Use 1031 exchange to defer tax and reinvest in new property.

• Key motivations:
  • Leverage appreciated equity to acquire multiple properties.
  • Diversify by asset class (retail, single-family, industrial) or geography.
  • Consolidate multiple properties into fewer, larger ones.
  • Increase cash flow.
  • Reduce management complexity.
  • Estate planning to divide assets among heirs and avoid disputes.
• Real Wealth assists clients in identifying suitable properties and locations

• Taxes involved in capital gains on real estate:
  • 25% depreciation recapture tax.
  • 20% federal capital gains tax plus 3.8% Net Investment Income Tax.
  • State tax varies (e.g., California up to 14.4%).
• Depreciation recapture applies over the lifetime of ownership (typically 27.5 years for residential rental).
• Example:
  • Property purchased at $400,000, fully depreciated by $300,000, sold for $1,000,000.
  • Adjusted tax basis: $100,000.
  • Capital gain: $900,000.
  • Taxes due on sale could be nearly $349,000.
  • Using 1031 exchange defers these taxes, enabling reinvestment of full proceeds.
  • Sale with taxes paid limits reinvestment to $2.6 million; 1031 exchange allows leveraging to $4 million.

• Internal Revenue Code Section 1031 states no gain or loss is recognized on exchanges of real property held for business or investment if exchanged solely for like-kind real property.
• Exchange entities matter: The taxpayer selling must be the same taxpayer acquiring the replacement property.
  • If a wife sells, she must acquire.
  • If an LLC sells, the LLC must acquire.
  • Correct identification of the taxpayer entity is critical to avoid invalidating the exchange.

• Like-kind property is broadly defined and includes:
• Properties not qualifying for 1031:
  • Principal residences (covered under different tax code 121).
  • Flips or inventory held for sale (not investment property).
• Split treatment: Mixed-use properties (e.g., a fourplex with one unit as primary residence) can combine 1031 and 121 benefits.
• Conversion of primary residence to rental property is possible to qualify for 1031 after meeting rental and ownership time requirements.

• No official IRS minimum holding period for investment properties before exchange.
• IRS guidance (private letter ruling) suggests 24 months of ownership to satisfy long-term investment intent.
• Holding for less than 24 months is possible if there is sufficient documented intent to hold for investment purposes.
• Example given of a client who held property 8 months with clear investment intent and successfully completed 1031 exchange.

• To defer all taxes fully:
  • Reinvest all net proceeds (sale price minus closing costs).
  • Acquire replacement property with same or greater debt.
• Example: Selling property for $900,000 with $300,000 debt and $60,000 closing costs → net proceeds $540,000. Replacement property bought for $1.2 million with $660,000 debt satisfies full deferral.
• Partial exchange: Allows retaining some cash (“boot”) or not replacing all debt, resulting in partial tax deferral.
  • Boot (cash or mortgage) is taxable.
  • Partial exchanges useful for paying off debt, funding other expenses, or not wanting to increase leverage.

• Consult a tax advisor to evaluate if 1031 makes financial sense based on property appreciation and improvements.
• Consult a qualified intermediary to arrange the exchange.
• Confirm the taxpayer entity matches on the sale and purchase agreements.

• Process:
  • Sell property, escrow funds wired to a qualified intermediary (QI).
  • The seller never receives funds directly to avoid constructive receipt.
  • 45 days from the close of escrow to identify replacement property.
  • 180 days from the close of escrow to close on the replacement property.
• Identification rules:
  • Three Property Rule: Identify up to 3 properties of any value.
  • 200% Rule: Identify unlimited properties, but the total value cannot exceed 200% of the relinquished property’s value.
  • 95% Rule: Identify unlimited properties of any value, but must acquire 95% of the identified value.
• Identification must be in writing, signed, and delivered by midnight of day 45.
• Offers can be made before identification; properties can be removed from the list if necessary.

• Can sell multiple properties and buy one, or sell one property and buy multiple.
• The identification period starts with the first sale’s close of escrow.
• Reverse exchange: Purchase replacement property before selling relinquished property.
  • Requires creation of an LLC as Exchange Accommodation Titleholder.
  • LLC holds title temporarily and leases property back to client.
  • Client must sell relinquished property within 180 days.
  • Reverse exchanges are more complex and expensive.

• Possible if escrow closing has not occurred.
• Requires immediate communication with escrow and a qualified intermediary to set up the exchange.
• Must prevent closing until wiring instructions are in place to avoid constructive receipt.

• Partial exchanges allow investors to defer most taxes while retaining some cash.
• Useful for debt paydown, other expenses (college funds, repairs).
• Alternative to partial exchange: full reinvestment plus refinancing to pull cash out.
• Clarification that adding extra funds to purchase property does not create boot.

• Debt must be replaced or supplemented with cash to avoid a mortgage boot.
• Foreign properties can qualify only if the exchange stays within foreign countries; U.S. to foreign or vice versa is not allowed.
• Vacation rental properties can qualify if owned and rented out for specific minimum periods and usage limits.
• Asset Preservation provides client support for filling out identification forms and guiding them through the process.
• Depreciation recapture applies only if depreciation was claimed.
• Taxpayer entity must match on sale and purchase; LLCs owned by individuals may be disregarded entities—consult CPA.
• Parking lots and garages qualify as real property.

• No specific industry stats on failure to identify properties within 45 days; generally, clients are successful.
• IRS G6 restrictions require that the QI hold funds for the complete identification and exchange periods.
• Fees:
  • Regular delayed exchange: $1,250–$2,000 depending on state.
  • Reverse exchange: $7,000–$9,000 due to complexity and LLC creation.

• Nonregulated industry; importance of choosing a trustworthy, qualified intermediary.
• Asset Preservation’s advantages:
  • 35 years of experience.
  • Over 200,000 exchanges completed.
  • Member of the Federation of Exchange Accommodators.
  • ENO insurance and additional protection through Cisco Information Systems.
  • Funds held in non-commingled accounts at large national banks.

• Start searching for replacement properties immediately after going under contract to sell.
• Use Real Wealth Network’s vetted property teams with replacement properties available now to identify strong candidates.
• Complete inspections and due diligence promptly to ensure properties can close within deadlines.

• Stephanie offers ongoing support and consultation.
• Investors are encouraged to consult investment counselors for personalized strategy sessions before proceeding.
• The webinar concludes with thanks and encouragement to reach out with any further questions.