2024

1031 Trends and Key Info

After a challenging 2023 year for Commercial Real Estate and 1031 Exchange transactions, what’s in store for 2024?

With a new business cycle notably marked by higher interest rates, inflation, and slower growth, the Commercial Real Estate industry has a more pessimistic outlook which will also impact the number of 1031 Exchanges that may occur. It will be a year of challenges and of opportunities.

Multifamily and industrial are predicted to remain popular asset classes, and retail with repurposed class usage, and hospitality, particularly with the growth of Airbnb and VRBO rental investment, will continue. These asset classes generally structure their transactions as 1031 Exchanges.

With the anticipated market challenges, 1031 Tax Deferred Exchange transactional activity should be slower than the unprecedented pandemic era volume. However, 1031 activity will remain resilient. There will continue to be many opportunities for educated investors and commercial property owners to utilize the strength of 1031 tax deferral. Click to read CRE market trends in entirety here.

1031 Trends for 2024

As long as interest rates are relatively high and quality inventory is limited, Reverse, Improvement and Build-to-Suit Exchanges will continue to be popular.
Traditional financing challenges will spur seller financing with sellers utilizing 1031 Exchanges to maximize this strategy.
Most CRE asset classes including multifamily, industrial, and retail are poised for strong activity utilizing 1031 Exchanges to defer taxes.
There will be an uptick in management intensive properties being exchanged into passive types of investments such as NNN and DSTs.
Cities and States that are not landlord/investor friendly will continue to see money being 1031 Exchanged into more real estate friendly areas.
There will be growing 1031 opportunities in pro ADU states for homeowners with rental ADUs. An accessory dwelling unit, usually just called an ADU, is a secondary housing unit on a single-family residential lot. When these properties are sold, the taxpayer may use the profits from the ADU to exchange, tax deferred, into another type of investment property.
We will continue to see investors exchange into areas that have warmer climates, low cost of living/lower taxes and are retirement friendly.

2024 Capital Gains Tax Brackets

2017 tax reform indexed the Long-Term Capital Gain rate breakpoints (whether a 15% or 20% rate) to inflation. The actual rates didn’t change for 2024, but the income brackets did adjust slightly. The breakpoints for 2024 are as follows: married filing jointly: $583,750+ and single filers: $518,900+. The capital gains brackets are based on “Taxable Income” whereas the Net Investment Income Tax thresholds are based on “Adjusted Gross Income”.

1031 Exchange Checklist

A 1031 Exchange transaction requires planning, expertise and support. Here’s a checklist outlining key steps in your exchange.

Choose your 1031 Qualified Intermediary (QI)
Consult with your tax professionals
Include Cooperation Clause language in your purchase and sale agreement
QI prepares your exchange documents
Start searching for Replacement Property
Sign all documents QI prepares
Sell your Relinquished Property
Identify your Replacement Property
Enter into contract on Replacement Property
Contact QI once Replacement Property escrow is opened
Close on Replacement Property
QI transfers funds to complete your purchase
Your exchange is complete

Tax Straddling – Pay Taxes in 2024 or 2025?

you may still be able to defer paying taxes on your capital gains until your 2024

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