1031 Exchange Tax Strategy for W-2 Filers and Real Estate Investors

In this episode of How to Lower Your Tax Bill, host Terrence Hutchins breaks down the 1031 exchange process for W-2 earners and real estate investors. As a financial and tax advisor in the Dallas-Fort Worth area, Terrence explains how this strategy helps defer capital gains taxes and maximize tax savings.

What You’ll Learn:

• 1031 Exchange Basics: What it is, how it started, and why the IRS incentivizes real estate reinvestment.
• Key Rules for Success: Same taxpayer requirement, qualifying property types, and investment holding periods.
• Timelines to Remember: 45 days to identify new properties and 180 days to close the transaction.
• Qualified Intermediary Requirement: Why you need a neutral third party to handle funds.

Key Tax Considerations:

• Boot and Gain Recognition: Understanding when you might owe taxes during the exchange process.
• Depreciation and Basis Tracking: How to keep accurate records across multiple property exchanges.
• Advanced Techniques: Reverse exchanges, split basis elections, and combining Section 1031 with Section 121 for mixed-use properties.

Featured Tax Story:

Declean vs. Commissioner (2000) – A real-life example of a taxpayer who lost a tax court case for improperly handling a 1031 exchange.

For more tax-saving tips, subscribe to How to Lower Your Tax Bill on Spotify or Apple Podcasts. Smart tax planning means keeping more of what you earn. Have questions? Email [email protected] and we’ll answer them in future episodes.