10/23/2026
Our clients rely on us for more than buying and selling buildings. They come to us for guidance—and a strategy for what comes next.
For longtime property owners, one of the biggest obstacles to selling is the tax bill.
A 1031 exchange can help.
It allows owners to sell investment real estate and defer taxes by reinvesting in other qualifying investment property.
Here’s a simplified example:
An owner purchased a building 15 years ago for $500,000 and sells it today for $5 million.
After $300,000 in depreciation, the adjusted tax basis is $200,000—creating a $4.8 million taxable gain.
REGULAR SALE
Assuming the owner’s other income already places them in the highest applicable tax brackets:
• Federal capital gains tax: $900,000
• Federal tax attributable to depreciation: $75,000
• Net investment income tax: $182,400
• Massachusetts taxes: $432,000
Total taxes: approximately $1.59 million.
Remaining proceeds: approximately $3.41 million.
1031 EXCHANGE
The owner reinvests the full $5 million into qualifying replacement property through a properly structured exchange.
Current tax on the fully deferred gain: generally $0.
Capital reinvested: $5 million.
That’s approximately $1.59 million more remaining invested in real estate.
THE KEY RULES
• Set up the exchange before your sale closes.
• A qualified intermediary handles the proceeds.
• Identify replacement property within 45 days.
• Close within 180 days—or your tax return deadline, including extensions, if earlier.
• To fully defer the gain, generally reinvest all net equity and purchase equal or greater value, replacing debt with new financing or additional cash.
The taxes are deferred, not erased—including taxes attributable to regular building depreciation.
At Core Property Group, we help clients evaluate their next move alongside their tax and legal advisors. We are fluent in advising on 1031 tax exchanges and have a team of qualified vendors to assist.
Thinking about selling a longtime investment? Let’s discuss your options.
Illustrative example only. Assumes the 3.8% investment income tax applies and excludes mortgages, selling costs, improvements, and tax offsets. Actual results vary.
