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You are here: Home / Power Of A 1031 Exchange

Power Of A 1031 Exchange

To illustrate the power of a 1031 exchange for a family selling a farm or ranch, consider the following example:

A ranch owner sells land for $5 million with a cost basis of $1 million. Assuming a combined federal and state capital gain tax rate of 25%, they would pay approximately $1,000,000 in taxes if they were to cash out.

If this same couple were to do a 1031 exchange on the full $5 million sale, this $1,000,000 that would have gone to pay taxes could be invested in additional real estate. Assuming this real estate returned 7% per year, it would generate an additional $70,000 per year of income.

Not only would this couple benefit from the additional income the real estate generates while they are alive, if they hold the property until they die and if real estate continues to receive a step up in basis upon death, they could potentially pass several million dollars more to their heirs and their heirs may avoid the capital gain taxes on the property entirely!

For more information on using a 1031 exchange for the sale of your farm or ranch, call 800-517-1031

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