As experts claim, the best way to make the most out of 1031 exchanging is to “swap till you drop.”


An investor can maintain the cycle of swapping real estate constantly and continue to defer paying capital gains taxes indefinitely. As long as the investors keep their equity invested in real estate and continue to defer taxes, the chances of them being able to maximize their wealth increases exponentially.


If the investor sells the real estate without reinvesting into a replacement like-kind property, they will owe the deferred taxes. However, if the investor chooses to own the exchanged real estate until the time he or she passes away (or drops, as the saying goes), the deferred tax liability is not assigned to the heirs with the real estate.

Step-up in basis for heirs

Whenever heirs inherit the investor’s real estate, they get a step-up in cost basis equivalent to the fair market value at the time of the investor’s demise. The heirs do not acquire any capital gains tax liabilities or depreciation recapture on the real estate.

At times investors add a family member to the property’s title and end up gifting the property to that family member. This breaks the chain of events that would provide their heirs the step-up in cost basis.

Mostly keeping assets in joint ownership with one’s heirs may be the most straightforward way to assign the assets after the primary owner passes away. However, till the time the property has an alive owner, whether a joint owner or the original exchanger, the owner will be liable for the tax burden on the property. To eliminate the accrued capital gains taxes due on real estate that has been delayed through 1031 exchanges, the real estate must transfer to the heir after the owner’s demise.


On the date of his death, Mark maintained property with a fair market value of $500,000. The property was acquired for $200,000. Mark’s daughter Cynthia got the property through her father’s will. Because she acquired the property with a step-up in cost basis equivalent to the fair market value, her cost basis is $500,000. If she chooses to sell the property for $500,000 instantly, she would not earn any capital gains or incur any capital gains taxes. If she possessed the property for some time and later traded the property, she would only recognize gain for the amount more significant than the original $500,000.

Therefore, if she sells the property for $600,000, she would owe capital gains taxes on the $100,000 gain. However, Cynthia can defer the capital gains taxes incurred due to this sale by opting for a 1031 exchange, substituting the inherited property for like-kind property.

Mark’s date of purchase, purchase price, and exchange history become irrelevant to the IRS once it is in Cynthia’s possession.

Swap ‘till you drop and maximize your wealth through 1031 exchange. Leave your heirs with assets that allow them to multiply their wealth and delay tax liabilities.

Bottom Line

If you’re concerned about maintaining real estate investments long after retirement or bothered your heirs will not be engaged in a management-intensive venture, Delaware Statutory Trust could be an option. DSTs are a 1031 exchange qualified real estate investment without the intensive management responsibilities of traditional real estate ownership

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