1031 Exchange Tax Reform Update: No Changes 2023

Dec 22, 2022

Great news, triple net (NNN) lease investors! As of December 13, 2022, the Biden Administration’s proposed FY2023 changes to the 1031-like-kind exchange are off the table. Therefore, if you plan to trade one or more underperforming or high-maintenance investment properties for low- or no-maintenance NNN lease properties and defer 100% of the federal capital gains tax without the intended restrictions, you can still do so in 2023.

A Quick 1031 Exchange Review

1031 exchange allows you to invest profits from the sale of one or more investment properties into one or more “like-kind” and often more valuable properties, and defer 100% of the federal capital gains tax from the sale of your original property – potentially indefinitely.

For example, you can exchange an apartment complex, retail center, farmland, or mobile home park for one or more high-quality NNN lease investments, reinvesting the money you would’ve paid in capital gains tax, and in some states, income tax, to grow your portfolio. This offers potential savings worth multiple thousands to millions of dollars.

Businesses that commonly use NNN leases and make great 1031 exchange investments:

New 100 dollar bills covering a table

1031 Exchange Financial Opportunities

Since 1921, 1031 exchanges have been a beneficial tool in real estate investing, and we see plenty more opportunities heading into 2023. Many real estate investors are selling and buying using the 1031 exchange to protect their capital, expand their portfolios, and build wealth. Business owners are performing NNN sale-leasebacks for greater access to operating capital, avoiding higher interest rates and typically providing higher-than-average cap rates to 1031 exchange NNN investors. Additionally, some real estate investors are waiting for cap rates to come up and sale prices to come down, leaving room in the market for buyers who are ready to purchase and sellers who are ready to negotiate.

If you are considering using a 1031 exchange to earn income, create financial opportunities, and build your portfolio, you can breathe easier knowing there won’t be any changes to the tax code in 2023 and the benefits will remain strong.

Did you know …

  • There are no restrictions on the number of times you can use the 1031 exchange in your lifetime?
  • When using the 1031 exchange, you can defer the federal capital gains tax on any income-producing property, including trading a rental home for a NNN property?
  • You might also be able to defer an additional 25% depreciation recapture tax if it’s applicable to your tax situation?
  • When coupled with other tax codes, such as cost segregation depreciation and bonus depreciation, you can potentially turn a 4.50–6.50% cap rate into a 7–10% internal rate of return?
  • Since this tax benefit is federal, you can use it to trade properties from one state to another, no matter where you reside?
  • In an unpredictable economy, the 1031 exchange can help safeguard your capital and build wealth?

Be sure to download our 1031 Exchange Rules & Timeline guide to get prepared for the process.

Man handing a business woman cash over a desk with a laptop and financial statements on the desk

The Future of 1031 Exchange: Tax Reform?

So, what does the future of the 1031 exchange look like? For now, stable. Over the years, §1031 has been labeled a tax loophole, so it will likely remain at risk. Historically, it has been on the tax reform list many times, but thankfully, no alterations have detracted from the numerous benefits it provides not only to investors but also to the economy and the growth of communities.

As NNN lease advisors, we will continue to keep an eye on other tax reformations that will require “pay-fors,” which could make the 1031 tax code a target in 2024.

To Wrap it Up – The Proposed 1031 Exchange Tax Reform is Not Happening in 2023

As CRE investors and buyers’ advisors, we are all relieved knowing the proposed 1031 exchange tax reform is not happening in 2023. This means if you are ready to divest from an underperforming property, a high-maintenance property, or any type of income-producing real estate that requires your time, energy, and capital, you can use the as-yet-unchanged 1031 exchange to defer 100% of the federal capital gains tax and reinvest in one or more responsibility free, income-producing, recession-proof, absolute NNN lease properties.

Let’s Have a No-Obligation Conversation About Your 1031 Exchange Opportunities

Westwood Logo in blue/goldAt no cost to you, Westwood Net Lease Advisors is here to help you utilize the 1031 exchange, from before you sell your original property through the entire buying process and thereafter. We specialize in NNN lease investing and 1031 exchanges, so you can count on our representation to ensure a correct and timely process. Questions? Contact us today for a no-obligation conversation about triple net lease investing using the 1031 exchange and other tax benefits. Our buyer services are free. 314-997-5227


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