| Tax Deferral | A properly executed 1031 Exchange may allow investors to defer State and Federal income taxation upon the sale of appreciated real estate, thereby preserving equity and potentially maximizing total return. |
| Ongoing Tax Benefits | A portion of monthly income may be offset by depreciation. |
| Increased Cash Flow | Investors seeking more current income can benefit from a 1031 Exchange from non-income producing or under-performing assets into one or more high-quality properties that may generate monthly income. |
| Capital Appreciation | Growth in the overall value of real estate holdings is necessary to overcome the effects of inflation. A 1031 Exchange may provide investors the opportunity to allocate their capital into assets that may increase the potential for appreciation. |
| Diversification | A 1031 Exchange can be a powerful tool to realize investment diversification, which may be achieved by: diversification in geographic region (multiple properties in multiple states); asset class (office, industrial, retail, multifamily); tenant industry and creditworthiness; capitalization structure (debt vs. equity); and/or ownership structure (fee simple vs. leasehold and severalty vs. co-ownership). |
| Passive Investment | One of the positive attributes of a 1031 Exchange for many investors is the ability to relinquish their ongoing property management responsibilities while still maintaining the potential for stable, monthly income from investment real estate. |
| Institutional Quality | Fractionalized real estate investments, structured as a Delaware Statutory Trust (DST), may offer investors the opportunity to own a partial interest in a higher quality asset than they could obtain individually. For example, investors may execute a 1031 Exchange from raw land or residential rentals into large, Class A properties with credit tenants, professional management, and better long-term appreciation potential. |
| Pre-Arranged Financing | With ongoing challenges in the global credit markets, individuals often find it difficult to obtain favorable financing on their own Bluerock Value Exchange (BVEX) removes this stress by pre-arranging favorable loan terms currently available to BVEX. Investors then receive their allocated portion of any such financing. |
Basic Requirements
For complete tax deferral, investors must:
- Reinvest 100% of net sales proceeds into the replacement property;
- Acquire an equal or greater amount of debt on the replacement property;
- Identify potential replacement property within 45 days from the date of sale;
- Close on the replacement property within 180 days from the date of sale1;
- Use a Qualified Intermediary (QI)
Identification Rules
Three Property Rule: The taxpayer may identify up to three properties of any fair market value and purchase any (or all) of them, regardless of total value. This is the most commonly used identification rule.
200% Rule: The taxpayer may identify an unlimited number of properties provided the total fair market value of all properties identified does not exceed 200% of the fair market value of the relinquished property and may purchase as any (or all) of the identified properties.
95% Rule: If the taxpayer identifies properties in excess of both of the above rules, then the taxpayer must acquire 95% of the value of all properties identified.
¹ The period of time during which an investor must complete the acquisition of the replacement property in a like-kind exchange transaction. The exchange period is 180 calendar days from the transfer of the investor’s relinquished property, or the due date (including extensions) of the investor’s income tax return for the year in which the tax-deferred, like-kind exchange transaction took place (whichever is earlier), and is not extended due to holidays or weekends.