Rebalancing Your Real Estate Portfolio with a 1031 Exchange
Updated: Oct 7
A 1031 exchange lets you sell property that no longer fits your plans and buy property that does, without paying capital gains tax on the sale now. That makes it one of the most useful tools for rebalancing a real estate portfolio.
Why portfolios drift
Over time, a portfolio can end up out of balance. One property appreciates and becomes most of your net worth. A market softens. A building needs more management than you want to give it. Selling to fix any of that normally means paying tax on years of gain and depreciation. An exchange lets you reposition with that money still working for you.
Keep in mind the tax is deferred, not eliminated. Your gain carries over into the replacement property until you sell without exchanging.
Common ways investors rebalance
Consolidate. Exchange several smaller properties into one larger one with less to manage.
Diversify. Exchange one property into several, in different markets or property types.
Change markets. Sell in a high-cost market and buy where the numbers or the growth look better to you.
Go more passive. Move into net-leased property or a Delaware Statutory Trust.
How it works
Look at what you own. Talk with your CPA about your gain, including depreciation recapture, on each property you might sell.
Decide what you want. Cash flow, appreciation, less management, a different location. Those choices are yours and your advisors'.
Set up the exchange before closing. Once you're under contract, put us in touch with your closing agent, usually your escrow officer, title company or closing attorney. We can get most exchanges set up the same day.
Identify within 45 days. Up to three properties of any value, or more than three as long as their total value doesn't exceed 200% of what you sold.
Close by day 180. You have up to and including day 180 to complete your replacement purchase or purchases.
To defer all of the tax, buy at least as much as you sell and reinvest all of your net equity. Anything you keep is taxable.
Why a Qualified Intermediary
In a delayed exchange, you can't receive the sale proceeds between the sale and the purchase. Almost every delayed exchange uses a Qualified Intermediary to hold those funds and handle the exchange documents. That's what we do. We don't choose properties or give tax advice.
Next step
If you're thinking about rebalancing, start the conversation with your CPA, and reach out to us before your sale closes so we can get your exchange set up.
APX 1031 is a Qualified Intermediary. We don't provide tax or legal advice; talk with your CPA or attorney about your situation.
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