1031 Exchange vs. Qualified Opportunity Zone

When it comes to tax deferral strategies for realized capital gains, the IRC Section 1031 Exchange is certainly the gold standard. Tax deferred exchanges have been utilized by the savvy investor as far back as the 1920’s, following a 1921 amendment to the federal tax code. Over the course of nearly a century of evolution and permutation, the tax deferred exchange allowed investors to sell real estate, machinery, vehicles, equipment, artwork, collectibles, livestock, patents, and other intellectual property without fear of incurring a hefty tax bill.

With the passage of the Tax Cuts and Jobs Act, the newest iteration of the tax-deferred exchange took shape in 2017. The 1031 Exchange is now limited solely to the exchange of “real” property (ask your CPA). For most, that effectively limits the 1031 exchange to real estate.

However, as we’ve discussed previously, the TCJA also introduced the Qualified Opportunity Zone, a boon for the tax-averse that were impacted by the new limitations imposed upon the 1031 exchange. Check out the helpful chart below to see the differences between the two and give me a call if you’d like to talk tax-deferral!

So what is the difference between investing in a Qualified Opportunity Zone and performing a 1031 Exchange? 

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There are material risks associated with investing in DST properties and real estate securities including liquidity, tenant vacancies, general market conditions and competition, lack of operating history, interest rate risks, the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and potential loss of the entire investment principal. Past performance is not a guarantee of future results. Potential cash flow, returns and appreciation are not guaranteed. IRC Section 1031 is a complex tax concept; consult your legal or tax professional regarding the specifics of your particular situation. This is not a solicitation or an offer to sell any securities. DST 1031 properties are only available to accredited investors (typically have a $1 million net worth excluding primary residence or $200,000 income individually/$300,000 jointly of the last three years)