The primary purpose of performing a 1031 Tax Deferred Exchange is to avoid                                                       current tax liability.

By avoiding current tax liability the Exchangor preserves capital and makes this capital available for the re-purchase of replacement property.

Preservation of capital, in turn, allows for:

    1) Return of investment on this capital;

    2) Larger down payment on replacement property;

    3) Lower monthly payments on replacement property;

    4) Greater ability to leverage replacement property;

    5) Possibility of deferring taxation forever.

Here is an example of how exchanging property increases the power of the Exchangor's Investment dollar.

      Property Basis Calculation:

    Purchase Price             = $100,000.00

    Less Depreciation        = $ 30,000.00

    Adjusted Basis             =  $ 70,000.00

      Tax Calculation:

    Current Sales Price            =  $175,000.00

    Less Basis (From Above)  = $ 70,000.00

    Taxable Gain                       = $105,000.00

    Tax Due                                = $ 22,500.00

    (25% of $30,000.00 plus 20% of $75,000.00)

               Cash Available for reinvestment:

    Exchange:                                                 No Exchange:

Sale Price             =  $175,000                        Sale Price            = $175,000

Cost of Sale           = $10,000                          Cost of Sale          = $10,000

Less Mortgages   =  $50,000                         Less Mortgage s  = $50,000

Cash from Sale     = $115,000                       Less Taxes           =  $22,500

Investment Power =  $460,000                      Cash from Sale     = $92,500

               (4 times cash) Investment Power  = $370,000

This example shows you how as an exchangor, you maintain control over an additional 
$22,500.00, which you would have had to pay the Government with a regular sale. 

You now can use this $22,500.00 to increase your net worth.

You can see how Exchanging has many creative advantages over regular Real Estate Practices. 

                                 Be creative and have more fun in Real Estate                        

  Benefits of a 1031 Exchange

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