Baby Boomers should look to utilize 1031 exchange for retirement

Baby boomers that currently have real estate investments should look at using 1031 exchange as a tool to leverage their wealth and provide some diversification in their portfolio.  Most people know about the tax benefits of 1031 exhcnage, but there are other non-tax reasons why 1031 exchange  can be a powerful tool for an investor.  Let’s look at a few now.

1. The current property has one tenant.  This is a big risk if your property is a specific use type property, or is one that you fear would not be easy to lease should you lose your current tenant.  There are several options here, ranging from multi-family or a multi tenant retail establishment to buying into Tenants in Common (TIC) investment that is professionally managed.   

2.  You have held a property long enough that you are no longer getting the tax write-offs from the mortgage interest deductions and depreciation.  You can start a new depreciation schedule and look at arranging the debt structure that best fits your needs on a new property. 

3.  An investor might want to look at exchanging a non revenue producing property such as raw land for an income property.  This income can be mostly tax sheltered by using depreciation. 

4.  An investor might be able to secure a non-recourse loan and exchange their property with recourse financing for one that is secured by the property (non-recourse).  This can provide an investor and their heirs with a very valuable type of protection should the property ever end up in default.  Simply put, non-recourse debt means you cannot lose more money than you have invested, and you don’t have to give a personal guaranty.

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