The after-tax return is the return on investment (ROI) after considering all taxes that will be owed on the investment. In a 1031 exchange, the after-tax return is the ROI of the replacement property after considering any capital gains taxes that would have been owed on the sale of the original property if a 1031 exchange was not conducted.
- The after-tax return is the ROI of an investment after considering all taxes that will be owed.
- In a 1031 exchange, the after-tax return is the ROI of the replacement property after considering the capital gains taxes that would have been owed on the sale of the original property if a 1031 exchange was not conducted.
John owns a rental property that he’s been using as an investment for several years. He decides to sell the property for $500,000 and use the proceeds to purchase a replacement property through a 1031 exchange. Without the 1031 exchange, John would owe capital gains taxes on the sale of the original property, reducing his after-tax return on the investment. However, by conducting a 1031 exchange, John is able to defer paying the capital gains taxes and achieve a higher after-tax return on the investment.
- Consider the after-tax return when making decisions about the sale of an investment property and whether a 1031 exchange may be a suitable option.
- Take into account the tax implications of a 1031 exchange and the after-tax return of the replacement property.
- Consult with a tax professional to fully understand the after-tax return implications of a 1031 exchange.
- Consider the use of a qualified intermediary (QI) when conducting a 1031 exchange to ensure that the exchange meets IRS requirements and to avoid actual receipt of the sale proceeds.
