What are 1035 exchanges? Paul L. Moffat, President and Senior Financial Planner at Arista Wealth Management, explains in the newest episode of Arista Advice!
Hello, welcome to Arista Advice! Question of the week is: "Paul, can you shed some light 1035 exchange?" Individuals will often go out and buy a piece of land. They'll buy a rental home with good hopes and aspirations for that asset or buy into a partnership for a commercial building or to a multifamily apartment complex, and that asset will have its life expectancy. After 3, 4, 5, 6, 7 years, they'll get exhausted, and they'll want to sell that asset.
Well, there's an unknown and often undiscussed part of the tax code, which is called the 1035 exchange. It's where an investor can take that same asset and sell it, defer the capital gains, identify a new property, and then go in and buy a new property in a different location. But it has to be the same type of asset. You can't go from raw land to a 95-foot high rise. There's some guidelines and some parameters that you need to follow to defer that capital gains. I
t's always best to defer a capital gain the best you can. But let me give you a little caveat. Right now, the US tax code brackets are on sale. Tax rates are low. They're all expected to go up on 01.01.2026. There is two and a half years left to take advantage of these low tax rates before they resort back to higher tax rates. So sometimes you may want to take the capital gains because the capital gains rates right now are favorable in many regards, and they're projected to go back up. But a 1035 one is a discussion we wanted to plant the seed of this important topic to help you understand. Some options that are available to you.
Always remember to consult other real estate professionals, tax professionals, and fiduciary financial advisors to help you make the best choice for you. Always remember go to AristaWealth.com to get other videos, tools, tips and resources to help you live a life of significance.