Under Section 121 of the Internal Revenue Code (“IRC”), when a taxpayer sells a principal residence, they are entitled to exclude $250,000 of gain ($500,000 for married taxpayers) from taxation. Under Section 1031 of the IRC, a taxpayer may exchange investment property for other investment property and defer capital gains on the sale.

Under Revenue Procedure 2005-14, when a property is used for both purposes – i.e. as a principal residence and for investment – a taxpayer may take advantage of both the 121 capital gain exclusion and the 1031 capital gain deferral.

By Mariel Devesa

Often times an investor builds significant real estate wealth through years of trading up their properties—directly benefiting through the use of 1031 exchanges. However, there comes a point later in life when the investor stops exchanging their property for the simple reason that they do not want added headaches. They know they are leaving money on the table, but they’ve have had it! No more dealing with the 3am phone calls about tenant A parking in tenant B’s parking spot. No more cringing during rain storms wondering if the gutters are clean and hoping there won’t be a leak in the roof. No more overflowing toilets, late rent checks, evictions...you get the picture. But, what alternatives do investors have?

The single-tenant, net lease market was very much like a roller coaster during 2006. We started the year with relatively stable cap rates and long-term interest rates. There were some credit concerns in the market, but supply and demand were generally in equilibrium. Then came spring and the rapid rise in the 10-year Treasury rate (over 100 basis points by the end of the second quarter to about 5.25%).

Click Here to View Net Lease Market Summary

CapHarbor and Exeter 1031 Exchange Company present this basic to intermediate level workshop on forward, reverse and improvement (build-to-suit or construction) tax-deferred, like-kind exchange transactions pursuant to Section 1031 of the Internal Revenue Code and Section 1.1031 of the Treasury Regulations.