Let’s say that Larry Landlord purchased a residential rental duplex 20 years ago for $100,000 and it’s now worth $1.1 million.
Larry wants out of this property, but he doesn’t want to pay $238,000 in tax on his $1 million capital gain.
One option is to defer the tax due on the gain by doing a Section 1031 exchange for another real property—for example, Larry could sell his duplex and use the proceeds to purchase a rental triplex of equal or greater value.
But there is another option: selling the property and investing the proceeds in a qualified opportunity zone fund. Which is better? Like most things in life, it depends. Specifically, it depends on Larry’s goals.
Goal: Get Out of the Real Estate Business
If Larry is tired of being a landlord and wants to get out of the real estate business, a Section 1031 exchange won’t help. You must exchange one property for one or more like-kind properties of equal or ... Log in to view full article.