Michigan Real Estate Law

We represent both buyers and sellers in structuring real estate transactions, including commercial real estate and farm land and transactions involving corporations and limited liability companies (LLCs).

Tax-Deferred 1031 Exchanges

Anyone who is thinking about selling a business or investment property should consider a 1031 Exchange, which allows you to avoid the capital gains tax that would otherwise be levied in an outright sale. Section 1031 tax deferred exchanges are becoming increasingly popular among Michigan property owners, particularly farmers and ranchers. There are many reasons to consider a 1031 Exchange, to include:

1. Equity Preservation
   A properly structured exchange can give real estate owners a 100% deferral of both Federal and State capital gain taxes. This essentially equals an interest-free, no-term loan on taxes due until the property is sold for cash. Often the capital gain taxes are deferred indefinitely because many property owners continue to exchange from one property to the next, increasing the value of their real estate investments with each exchange.
2. Leverage
   Many property owners exchange from a property where they have a high equity position, into more valuable property. The larger property can generate more cash flow and provide greater depreciation benefits, and a better overall return.
3. Diversification
   Section 1031 Exchanges offer a great opportunity to diversify assets, whether by diversifying into another geographic region or simply from one property type to another (such as from a farm or ranch into an apartment building).
4. Administrative Relief
   Some types of property require hands-on management (such as a farm or ranch), and that type of responsibility can become burdensome.  Exchanging into a property with less maintenance or ongoing management can make good economic sense, especially in the context of a tax-free exchange.
5. Estate Planning
   Sometimes a number of family members inherit one large property and disagree about what to do with it. Some may want to continue to hold the property, while others want to sell for quick cash. By exchanging from one large property into several smaller properties, clients can designate that, after their death, their heirs will each receive a different property, which they can choose to either hold or sell.

If you think a Section 1031 Exchange might be beneficial for you or your family, please call our office. We are happy to help you explore the options and make an informed choice.