Over the years, Houses & Then Some, Inc has worked with several clients who have used 1031 Exchanges to turn smaller residential investment properties into larger rental holdings. One of the biggest benefits? They were able to defer capital gains and depreciation recapture taxes, keeping more of their money invested and working for them instead of going to taxes.
Because 1031 Exchanges can seem complicated at first, we recently sat down with Jamie Kingdom of Banker Exchange, a South Carolina-based qualified intermediary, to talk about how the process works and why it can be such a valuable tool for real estate investors. Whether you’re looking to grow your portfolio, consolidate properties, or simply learn more about your options, Jamie shares some helpful insights and real-world experience. Check out her story below!
More Than a Tax Strategy
When most people hear “1031 Exchange,” they think about taxes. For Jamie Kingdom of Banker Exchange, it’s about opportunity.
As a Certified Exchange Specialist (CES®) and member of the Board of Directors for the Federation of Exchange Accommodators (FEA), Jamie has spent nearly a decade helping investors use 1031 Exchanges to grow their portfolios and keep more of their money working for them.
A 1031 Exchange allows investors to defer capital gains taxes when they sell one investment property and reinvest in another qualifying property.
What Qualifies
One of the biggest misconceptions about 1031 Exchanges is that properties must be nearly identical. Robert Dayton, Houses & Then Some, Inc.’s CEO, says “like-kind” can be very broad.
“A rental house can be exchanged for an apartment building, commercial property, land, or other investment real estate,” Robert said. “ The key requirement is that both properties are held for investment or business purposes.”
Primary residences, most vacation homes, fix-and-flip properties, and investments like stocks and bonds do not qualify.
Plan Early
The biggest mistake Jamie sees? Waiting too long.
Many investors don’t explore a 1031 Exchange until they’re already under contract. By then, options can be limited. Jamie recommends speaking with a Qualified Intermediary early, even if you’re only considering selling.
“You want to find out what you don’t know about a 1031,” she said.
Timing is critical. Investors have 45 days after selling a property to identify replacement properties and 180 days to complete the purchase. A Qualified Intermediary must also hold the sale proceeds to keep the transaction compliant with IRS rules.
One Very Important Caveat
While a 1031 Exchange can be an incredibly helpful strategy, it’s important to remember that it defers taxes, but it doesn’t automatically eliminate them forever.
If you eventually sell a property without completing another exchange, taxes may become due. However, many investors continue using 1031 Exchanges throughout their lifetime as part of a broader long-term investment strategy.
“Our team knows utilizing a strategy like a 1031 Exchange can be overwhelming, but that’s why we’re here to help,” Robert said. “We care about our customers and their success, and can guide everyone through every step of the way.”
The Human Side of Real Estate
While a 1031 Exchange is a powerful financial tool, Jamie has also seen these exchanges create positive change in local communities.
One investor she worked with spent years purchasing and improving rental properties in Greenville’s Nicholtown neighborhood. Rather than flipping homes for a quick profit, he renovated properties and kept rents affordable for local residents. As his portfolio grew, he used 1031 Exchanges to reinvest in additional homes, improving housing options throughout the community.
Have questions about a 1031 Exchange? The Houses & Then Some team is happy to help connect you with the resources you need to explore your options.
