Fortitude's Insights

Understanding Depreciation Recapture for your 1031 Exchange

Posted by Daniel Raupp on Jul 6, 2018 1:16:00 PM

Depreciation recapture is a significant factor in participating in a like-kind exchange. While capital-gains tax rates are currently at historical lows, tax rules require you to recapture the portion of the gain on the sale that relates to allowable depreciation over the period the asset was held.  Additionally, you must recapture it at a higher tax rate (typically 25%).

For the purpose of discussion, the depreciation recapture rules assumes that:

(a) your regular marginal income tax bracket is greater than 15%, and

(b) the real estate sold is the only business asset sold by you in the tax year of the sale

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Topics: 1031 Exchange, Depreciation Recapture

What You Need to Know About 1031 Exchanges

Posted by Daniel Raupp on Nov 2, 2016 11:24:01 AM
While Section 1031 of the tax code is little known, it is starting to make its way into the lexicon of investors across the country.  Usually, they will say, "let’s 1031 that building." However, Section 1031 is not just for real estate – even though it is where it is most commonly used.  So, what is a 1031 and why do you need to know about 1031 exchanges?  This article will take a deeper look and try to give you some more insight on this fast-growing tax-free investment program.

In its simplest terms, a 1031 or a 1031 exchange is a swap of one asset for another. 

Unlike a sale, which is a swap for cash, a 1031 is a ‘"like-kind exchange" which is also known as a Starker. The beauty of these exchanges is that they limit the amount of tax due.  This means that under the eyes of the IRS, you will not recognize any capital gains from the transaction.  As you can see, this can be a powerful tool to defer taxes as you can roll the gains from one investment into another.  This can continue until you sell the final asset.

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Topics: 1031 Exchange, Depreciation Recapture, Delaware Statutory Trust

DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. 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. Insurance products offered through Concorde Insurance Agency, Inc. (CIA). Fortitude Investment Group is independent of CIS, CAM and CIA.

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