March 3, 2020 - Talking to one of our correspondents during the Investor's Summit held last week in Santa Ana, CA, Chris Wagner, CEO Wagner Consultancy, revealed how the 1031 exchange investment strategy is a useful tool to defer capital gains taxes. He described a 1031 exchange as a robust investment strategy that lets investors defer capital gains taxes, and when mixed with investment options like DST or NNN lease, offers several other benefits like freedom from property management and a regular flow of income. When asked about the challenges that 1031 exchange investors face, Chris said, 'the majority of investors get anxious during the initial 45 days of their 1031 exchanges. As the IRS requires investors to identify one or more replacement property within 45 days after the sale of the relinquished property, the pressure is enormous in the beginning.'

Speaking further on the challenges faced by investors, Chris explained how investors would ask him if withdrawing a portion of proceeds would impact their 1031 exchange. 'Yes, it will. I would repeat every time. After all, it is the only thing you are not supposed to do as a 1031 exchange investor. You cannot touch your sale proceeds. The IRS has strictly mentioned in the guidelines that investors can't use their 1031 exchange proceeds for other purposes. They must reinvest the entire proceeds in one or more like-kind properties. Spending even a penny can lead to disqualification.'

Though Chris mentioned 'touching 1031 exchange proceeds is strictly prohibited for investors', he revealed a hack that could make this impossible task possible. 'But there is a hack for this. Say, you want to withdraw $10K from your 1031 exchange proceeds. When you do so, you can pay taxes on the utilized amount and still defer taxes on the majority of the amount. It's called a partial 1031 exchange.' Chris also educated us with other rules and guidelines of a 1031 exchange. He concluded the interaction saying, a 1031 exchange is a powerful weapon and must be used wisely.