Category: 1031 Exchange General

1031 Exchanges Across Tax Years 
IRC Section 1031 Regulations specify that, “The exchange period begins on the date the taxpayer transfers the relinquished property and ends at midnight on the earlier of the 180th day thereafter or the due date (including extensions) for the taxpayer’s return of tax imposed for the taxable year in which the transfer of the relinquished property occurs.” In other words, an Exchanger generally has 180 days to complete the 1031 Exchange by acquiring Replacement Property(ies), allowing them to defer taxes by reinvesting proceeds. 
However, if a 1031 Exchange begins in the second half of the year, specifically after July 5th, it may “straddle” two tax years, meaning the 180-day exchange deadline falls within the next calendar year. For a successful 1031 Exchange fully completed sooner, tax straddling has no impact on the exchange, it only comes into play if the 1031 Exchange continues to hold funds at the time of the https://www.accruit.com/blog/early-release-exchange-funds-possible-unde… possible distribution date under the regulations due to failure to acquire all identified Replacement Property by day 180 and having funds left in the exchange account. This same straddle can also result for exchanges that close on the Relinquished Property sale on or after November 17th. In most cases, an Exchanger cannot get the funds back prior to the expiration of the 45-day identification period, pushing the earliest funds return date until January 1st, or later, of the following year. This same result can occur if there are additional properties identified but not acquired and there are leftover funds in the exchange account. 
An additional consideration to be aware of for exchanges initiated after October 18th, Exchangers may not receive the full 180 days due to the April 15th tax deadline unless they https://www.accruit.com/blog/end-year-tax-considerations-2024″>file for a tax extension. To take full advantage of the 180-day period, they would need to submit Form 4868, which grants an additional six months to file income taxes. 
What Happens if a 1031 Exchange Fails? 
If a 1031 Exchange results, in whole or in part, with any of unused funds remaining, they are returned to the Exchanger, and all applicable taxes have to be paid on those funds. For a 1031 Exchange that starts and ends within the same year, 2024 for example, the Exchanger will be subject to pay the associated taxes as part of their 2024 Tax Return. In the event a 1031 Exchange spanned across two tax years, for example, it was started in 2023 and then resulted in a return of funds in 2024, the Exchanger has the option of which year they want to recognize the “gain” from the Relinquished Property sale (not depreciation recapture and certain other taxes). Default reporting provides that the gain from the sale is recognized in the year the exchange funds are received, rather than the year it was started. In this event, the Exchanger is able to defer the taxes until their 2024 tax filing deadline (April 15, 2025, for individual filings) by applying the IRS Installment Sale rules under Section 453. The reporting of the receipt of the (installment) payment is done via IRS Form 6252. This option provides flexibility, allowing Exchangers to manage tax obligations more effectively and take advantage of tax deferral short-term, even when the exchange results in the Exchanger’s receipt of any funds.  
For example, consider a 1031 Exchange initiated on December 1st, 2024. The 45-day identification deadline would fall on January 15, 2025, with the 180-day exchange period ending on May 30, 2025. If the exchange results in unused funds, whether due to non-identification or a lack of full Replacement Property acquisition, the Exchanger will not receive the exchange proceeds back until the subsequent tax year from the start of their exchange, in this example 2025. In this case, the IRS allows Exchangers to choose between reporting the gain in the year of the sale or in the year the proceeds were received through Section 453 installment sale rules. A special election needs to be made to report the gain in 2024 should the Exchanger desire the same. Using the installment sale treatment essentially provides a one-year deferral on payment of tax on the gains from the Relinquished Property. 
Another scenario is when an Exchanger acquires Replacement Property(ies) but does not fully utilize exchange funds, resulting in taxable “boot”. By structing the receipt of the boot as an installment sale, an Exchanger can spread the tax liability over time. Instead of paying taxes on the entirety of the boot in the year of the 1031 Exchange, an Exchanger can pay taxes only on the amount received each year under the installment sale. 
Common Scenarios Where a 1031 Exchange Fails and How Installment Sale Treatment Can Help 
Several scenarios can lead to the failure of a 1031 Exchange, but in some cases, installment sale treatment may provide an alternative tax-deferral strategy: 

Failure to Identify Replacement Property: The Exchanger may be unable to identify Replacement Property(ies) within the required 45-day period and the expiration of the identification period crosses into the following tax year 

Failure to Acquire Identified Properties: The Exchanger identifies Replacement Property(ies) within the 45-day period but does not acquire any by the 180-day deadline. 

Failure to Expend all the Exchange Funds:  Replacement Property has been acquired, but additional property has been identified, and excess funds still remain in the account, but the Exchanger does not wish to acquire any additional property. 

In all of these cases, opting for installment sale treatment can help reduce the immediate tax burden, provided the initial intent to complete a 1031 Exchange is maintained. 
Considerations for Determining Which Year to Report the Failed Exchange 
Some of the considerations for which tax year to report and pay the gain include:   
Reporting in Year of Returned Funds (latter year) 

The “time value of money”, i.e. all things being equal, most people would rather pay tax a year later and have those funds working for them without penalty for the year 

The Exchanger may believe that the capital gain rates might be lowered in the next tax year 

An Exchanger may have a change in income coming up, such as retiring or some other event, that might push him into a lower tax bracket in the following year 

Reporting in Year of Property Sale  

The Exchanger may have losses in the year of sale that she might be able to offset against the taxable gain. 

The Exchanger may believe that capital gain rates may be higher in future years and may want to pay the tax at the current rate rather than risk paying them later when I higher rate may be in effect. 

Understanding the Pros and Cons of Choosing Installment Sales 
Choosing the installment sale route carries no IRS penalties and adds flexibility, which is particularly beneficial when an exchange crosses into a new tax year and funds are returned in that year. The IRS considers installment sale treatment the default reporting method for an unsuccessful exchange that straddles tax years unless the Exchanger specifically elects to report the gain in the year of the Relinquished Property sale.  
However, an installment sale can have drawbacks, including:    

Debt paid off at the closing of the Relinquished Property, gain associated with the debt is typically recognized in the year of sale, leading to immediate tax liabilities.  

Depreciation recapture under Sections 1245 or 1250 is taxed as ordinary income, potentially resulting in a significant tax burden. If the sale price exceeds $150,000 and installment obligations exceed $5 million, interest is charged on the deferred taxes, raising the overall cost.  

It is important to note that the rules governing Section 453 installment sales are specific. Installment sales do not apply to all transactions, and they do not defer any gain related to debt relief. 
1031 Exchanges that span across two tax years require careful planning and consideration to ensure the Exchanger can fully benefit from IRS rules, including installment sales under Section 453. Installment sales offer a valuable benefit for deferring taxes should an exchange fail, or significant exchange proceeds remain unused. It is essential to consult with tax and/or legal advisors to fully understand to concepts covered in this blog.  
Consulting advisors to work in combination with a highly credentialed Qualified Intermediary such as Accruit can help Exchangers make informed choices and better manage tax their implications associated with the sale of real estate investments. 
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.        

The Role of the Qualified Intermediary in a 1031 Exchange 
By definition, a https://www.accruit.com/blog/what-qualified-intermediary”>Qualified Intermediary (QI) is an independent third-party that facilitates IRS Section 1031 tax-deferred exchanges. The primary function of a QI is to serve as a conduit in the exchange, managing the acquisition and transfer of properties while ensuring compliance with the detailed rules established by IRS Regulations. This oversight is crucial for maintaining the integrity of the exchange to achieve tax deferral. Additionally, it is essential that the Exchanger avoids actual or constructive receipt of the proceeds from the sale of the Relinquished Property during the period between the sale and the purchase of the Replacement Property(ies). The Regulations suggest several methods to ensure that the Exchanger is not deemed to have access to those funds. Typically, this requirement is met by having the QI hold the funds on behalf of the Exchanger. 
How the Qualified Intermediary Facilitates the 1031 Exchange 
The regulation clearly states that the Qualified Intermediary “acquires the Relinquished Property from the taxpayer, transfers the Relinquished Property [to the Buyer], acquires the Replacement Property, and transfers the Replacement Property to the taxpayer.” This is accomplished using assignments, legal documents that the QI prepares as part of the exchange.  
In these assignments, the Exchanger assigns their rights, but not their responsibilities, under the contracts for both the sale of the Relinquished Property and the purchase of the Replacement Property(ies). The QI then arranges the transfer of the Relinquished Property to the Buyer and handle the receipt of the Replacement Property(ies) from the Seller, ensuring the properties are exchanged. 
Although the deeds to the properties never physically pass through the Qualified Intermediary and the QI never holds legal title, the assignments create a legal framework that makes it appear as though this transfer occurs. Essentially, the Exchanger is transferring the Relinquished Property to the QI and receiving the Replacement Property(ies) from the QI. This is where the actual exchange takes place, within the legal framework of the two assignments. 
Why Exchangers Want to Change Qualified Intermediaries 
Periodically, we receive inquiries from Exchangers who have already sold their Relinquished Property and are in the middle of a 1031 Exchange but are seeking to change their Qualified Intermediary. There are several reasons why an Exchanger might consider this change. Sometimes, it’s due to a lack of responsiveness from their current Qualified Intermediary, with unanswered calls and emails causing frustration. In other cases, the Exchanger may feel that the QI does not demonstrate the level of competence required to inspire confidence that their exchange is being managed properly. 
Why Exchangers Can’t Change Qualified Intermediaries Mid-Exchange 
Unfortunately, once a 1031 Exchange is underway, an Exchanger cannot switch Qualified Intermediaries. This is because the QI must be involved in both the sale of the Relinquished Property and the purchase of the Replacement Property(ies) as noted in the above section. Swapping intermediaries partway through would invalidate the exchange, according to IRS Regulation §1.1031(k)-1(g)(4)(iii). Thus, the same QI must handle both transactions to maintain compliance.  
According to Regulation §1.1031(k)-1(g)(4)(iii), a Qualified Intermediary must: 

Not be the Exchanger or a https://www.accruit.com/blog/who-disqualified-facilitating-1031-like-ki… person (as defined in paragraph (k) of the regulation). 

Enter into a written agreement with the Exchanger (known as the “exchange agreement”). As part of this agreement, the QI is required to acquire and transfer the Relinquished Property, as well as acquire and transfer the Replacement Property(ies) to the Exchanger. 

There is one circumstance under which an Exchanger may change Qualified Intermediaries, but it is very narrow. If the Exchanger has begun working with a Qualified Intermediary, and even gone so far as to sign exchange documents, but the first real estate transaction that is part of the exchange has not been consummated, the Exchanger can change QIs without problem. More succinctly, if the first sale or purchase that is part of the exchange has not yet closed escrow, the exchange has not technically begun, and the Exchange may change to a more suitable QI. 
The Importance of Expertise in Complex 1031 Exchanges 
Not all Qualified Intermediaries are equally skilled or experienced and given the inability to change QIs mid-exchange it is crucial to choose a “qualified” QI from the start. Some QIs focus solely on handling simple forward delayed exchanges, which are the most basic type of 1031 Exchange. However, Exchangers may sometimes realize mid-process that they need a more advanced exchange that also requires an Exchange Accommodation Titleholder (EAT), such as a https://www.accruit.com/blog/1031-exchanges-involving-construction-and-… improvement exchange, which is beyond the expertise of many QIs. At this point, they would be stuck without the option to change QIs and if full tax deferral relied on their ability to do a forward improvement exchange, they would be facing a potentially taxable event. 
Whether an Exchanger is planning for a simple or complex 1031 Exchange, it is always encouraged that they choose a Qualified Intermediary well versed in all types and complexities to fully ensure tax deferral. It is essential to select a Qualified Intermediary before the first closing of a 1031 Exchange, as switching mid-process is not allowed. Not all QIs have the expertise to manage complex exchanges, so consult your tax and legal advisors early on. Choosing an experienced QI, such as Accruit, ensures that your 1031 Exchange is managed efficiently and in full compliance with IRS regulations. 
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.         

The Role of the Qualified Intermediary in a 1031 Exchange 
By definition, a https://www.accruit.com/blog/what-qualified-intermediary”>Qualified Intermediary (QI) is an independent third-party that facilitates IRS Section 1031 tax-deferred exchanges. The primary function of a QI is to serve as a conduit in the exchange, managing the acquisition and transfer of properties while ensuring compliance with the detailed rules established by IRS Regulations. This oversight is crucial for maintaining the integrity of the exchange to achieve tax deferral. Additionally, it is essential that the Exchanger avoids actual or constructive receipt of the proceeds from the sale of the Relinquished Property during the period between the sale and the purchase of the Replacement Property(ies). The Regulations suggest several methods to ensure that the Exchanger is not deemed to have access to those funds. Typically, this requirement is met by having the QI hold the funds on behalf of the Exchanger. 
How the Qualified Intermediary Facilitates the 1031 Exchange 
The regulation clearly states that the Qualified Intermediary “acquires the Relinquished Property from the taxpayer, transfers the Relinquished Property [to the Buyer], acquires the Replacement Property, and transfers the Replacement Property to the taxpayer.” This is accomplished using assignments, legal documents that the QI prepares as part of the exchange.  
In these assignments, the Exchanger assigns their rights, but not their responsibilities, under the contracts for both the sale of the Relinquished Property and the purchase of the Replacement Property(ies). The QI then arranges the transfer of the Relinquished Property to the Buyer and handle the receipt of the Replacement Property(ies) from the Seller, ensuring the properties are exchanged. 
Although the deeds to the properties never physically pass through the Qualified Intermediary and the QI never holds legal title, the assignments create a legal framework that makes it appear as though this transfer occurs. Essentially, the Exchanger is transferring the Relinquished Property to the QI and receiving the Replacement Property(ies) from the QI. This is where the actual exchange takes place, within the legal framework of the two assignments. 
Why Exchangers Want to Change Qualified Intermediaries 
Periodically, we receive inquiries from Exchangers who have already sold their Relinquished Property and are in the middle of a 1031 Exchange but are seeking to change their Qualified Intermediary. There are several reasons why an Exchanger might consider this change. Sometimes, it’s due to a lack of responsiveness from their current Qualified Intermediary, with unanswered calls and emails causing frustration. In other cases, the Exchanger may feel that the QI does not demonstrate the level of competence required to inspire confidence that their exchange is being managed properly. 
Why Exchangers Can’t Change Qualified Intermediaries Mid-Exchange 
Unfortunately, once a 1031 Exchange is underway, an Exchanger cannot switch Qualified Intermediaries. This is because the QI must be involved in both the sale of the Relinquished Property and the purchase of the Replacement Property(ies) as noted in the above section. Swapping intermediaries partway through would invalidate the exchange, according to IRS Regulation §1.1031(k)-1(g)(4)(iii). Thus, the same QI must handle both transactions to maintain compliance.  
According to Regulation §1.1031(k)-1(g)(4)(iii), a Qualified Intermediary must: 

Not be the Exchanger or a https://www.accruit.com/blog/who-disqualified-facilitating-1031-like-ki… person (as defined in paragraph (k) of the regulation). 

Enter into a written agreement with the Exchanger (known as the “exchange agreement”). As part of this agreement, the QI is required to acquire and transfer the Relinquished Property, as well as acquire and transfer the Replacement Property(ies) to the Exchanger. 

There is one circumstance under which an Exchanger may change Qualified Intermediaries, but it is very narrow. If the Exchanger has begun working with a Qualified Intermediary, and even gone so far as to sign exchange documents, but the first real estate transaction that is part of the exchange has not been consummated, the Exchanger can change QIs without problem. More succinctly, if the first sale or purchase that is part of the exchange has not yet closed escrow, the exchange has not technically begun, and the Exchange may change to a more suitable QI. 
The Importance of Expertise in Complex 1031 Exchanges 
Not all Qualified Intermediaries are equally skilled or experienced and given the inability to change QIs mid-exchange it is crucial to choose a “qualified” QI from the start. Some QIs focus solely on handling simple forward delayed exchanges, which are the most basic type of 1031 Exchange. However, Exchangers may sometimes realize mid-process that they need a more advanced exchange that also requires an Exchange Accommodation Titleholder (EAT), such as a https://www.accruit.com/blog/1031-exchanges-involving-construction-and-… improvement exchange, which is beyond the expertise of many QIs. At this point, they would be stuck without the option to change QIs and if full tax deferral relied on their ability to do a forward improvement exchange, they would be facing a potentially taxable event. 
Whether an Exchanger is planning for a simple or complex 1031 Exchange, it is always encouraged that they choose a Qualified Intermediary well versed in all types and complexities to fully ensure tax deferral. It is essential to select a Qualified Intermediary before the first closing of a 1031 Exchange, as switching mid-process is not allowed. Not all QIs have the expertise to manage complex exchanges, so consult your tax and legal advisors early on. Choosing an experienced QI, such as Accruit, ensures that your 1031 Exchange is managed efficiently and in full compliance with IRS regulations. 
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.         

The Role of the Qualified Intermediary in a 1031 Exchange 
By definition, a https://www.accruit.com/blog/what-qualified-intermediary”>Qualified Intermediary (QI) is an independent third-party that facilitates IRS Section 1031 tax-deferred exchanges. The primary function of a QI is to serve as a conduit in the exchange, managing the acquisition and transfer of properties while ensuring compliance with the detailed rules established by IRS Regulations. This oversight is crucial for maintaining the integrity of the exchange to achieve tax deferral. Additionally, it is essential that the Exchanger avoids actual or constructive receipt of the proceeds from the sale of the Relinquished Property during the period between the sale and the purchase of the Replacement Property(ies). The Regulations suggest several methods to ensure that the Exchanger is not deemed to have access to those funds. Typically, this requirement is met by having the QI hold the funds on behalf of the Exchanger. 
How the Qualified Intermediary Facilitates the 1031 Exchange 
The regulation clearly states that the Qualified Intermediary “acquires the Relinquished Property from the taxpayer, transfers the Relinquished Property [to the Buyer], acquires the Replacement Property, and transfers the Replacement Property to the taxpayer.” This is accomplished using assignments, legal documents that the QI prepares as part of the exchange.  
In these assignments, the Exchanger assigns their rights, but not their responsibilities, under the contracts for both the sale of the Relinquished Property and the purchase of the Replacement Property(ies). The QI then arranges the transfer of the Relinquished Property to the Buyer and handle the receipt of the Replacement Property(ies) from the Seller, ensuring the properties are exchanged. 
Although the deeds to the properties never physically pass through the Qualified Intermediary and the QI never holds legal title, the assignments create a legal framework that makes it appear as though this transfer occurs. Essentially, the Exchanger is transferring the Relinquished Property to the QI and receiving the Replacement Property(ies) from the QI. This is where the actual exchange takes place, within the legal framework of the two assignments. 
Why Exchangers Want to Change Qualified Intermediaries 
Periodically, we receive inquiries from Exchangers who have already sold their Relinquished Property and are in the middle of a 1031 Exchange but are seeking to change their Qualified Intermediary. There are several reasons why an Exchanger might consider this change. Sometimes, it’s due to a lack of responsiveness from their current Qualified Intermediary, with unanswered calls and emails causing frustration. In other cases, the Exchanger may feel that the QI does not demonstrate the level of competence required to inspire confidence that their exchange is being managed properly. 
Why Exchangers Can’t Change Qualified Intermediaries Mid-Exchange 
Unfortunately, once a 1031 Exchange is underway, an Exchanger cannot switch Qualified Intermediaries. This is because the QI must be involved in both the sale of the Relinquished Property and the purchase of the Replacement Property(ies) as noted in the above section. Swapping intermediaries partway through would invalidate the exchange, according to IRS Regulation §1.1031(k)-1(g)(4)(iii). Thus, the same QI must handle both transactions to maintain compliance.  
According to Regulation §1.1031(k)-1(g)(4)(iii), a Qualified Intermediary must: 

Not be the Exchanger or a https://www.accruit.com/blog/who-disqualified-facilitating-1031-like-ki… person (as defined in paragraph (k) of the regulation). 

Enter into a written agreement with the Exchanger (known as the “exchange agreement”). As part of this agreement, the QI is required to acquire and transfer the Relinquished Property, as well as acquire and transfer the Replacement Property(ies) to the Exchanger. 

There is one circumstance under which an Exchanger may change Qualified Intermediaries, but it is very narrow. If the Exchanger has begun working with a Qualified Intermediary, and even gone so far as to sign exchange documents, but the first real estate transaction that is part of the exchange has not been consummated, the Exchanger can change QIs without problem. More succinctly, if the first sale or purchase that is part of the exchange has not yet closed escrow, the exchange has not technically begun, and the Exchange may change to a more suitable QI. 
The Importance of Expertise in Complex 1031 Exchanges 
Not all Qualified Intermediaries are equally skilled or experienced and given the inability to change QIs mid-exchange it is crucial to choose a “qualified” QI from the start. Some QIs focus solely on handling simple forward delayed exchanges, which are the most basic type of 1031 Exchange. However, Exchangers may sometimes realize mid-process that they need a more advanced exchange that also requires an Exchange Accommodation Titleholder (EAT), such as a https://www.accruit.com/blog/1031-exchanges-involving-construction-and-… improvement exchange, which is beyond the expertise of many QIs. At this point, they would be stuck without the option to change QIs and if full tax deferral relied on their ability to do a forward improvement exchange, they would be facing a potentially taxable event. 
Whether an Exchanger is planning for a simple or complex 1031 Exchange, it is always encouraged that they choose a Qualified Intermediary well versed in all types and complexities to fully ensure tax deferral. It is essential to select a Qualified Intermediary before the first closing of a 1031 Exchange, as switching mid-process is not allowed. Not all QIs have the expertise to manage complex exchanges, so consult your tax and legal advisors early on. Choosing an experienced QI, such as Accruit, ensures that your 1031 Exchange is managed efficiently and in full compliance with IRS regulations. 
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.         

Where Did the Term “1031 Exchange” Come From?  
The term “1031 Exchange” originates from Section 1031 of the Internal Revenue Code, established in 1954 as an amendment to the Federal Tax Code. This section codified the definition and rules for tax-deferred exchanges of like-kind properties, allowing investors to defer capital gains taxes when exchanging real estate or certain other property held for business or investment. Initially part of Section 112(b)(1) in the Revenue Act of 1921 (later renumbered in the Revenue Act of 1928), this section ultimately became known as Section 1031, leading to the term “1031 Exchange”. 
The Origins of Section 1031: The Revenue Act of 1921 
https://www.accruit.com/blog/history-1031-exchanges”>The Revenue Act of 1921 was pivotal in establishing tax-deferred exchanges, allowing investors to exchange properties without immediate capital gains tax. Section 202 of the Act required exchanged properties to be of similar use, or “like-kind,” to prevent investors from avoiding taxation by exchanging real estate for non-real estate assets. Congress noted that if no cash exchanged hands, the “continuity of an investment” should not trigger a taxable event. In 1954, an amendment to the Federal Tax Code clarified and strengthened the definition of a tax-deferred, like-kind exchange, establishing a clearer structure for real estate exchanges that shaped how 1031 Exchanges are conducted today.  
How 1031 Exchanges Benefit Investors and the Economy 
The https://www.accruit.com/blog/how-1031-exchanges-stimulate-economy”>bene… of 1031 Exchanges not only impact property owners, but also significantly contribute to economic growth. 
Encourages Real Estate Transactions and Ensures Investment Continuity   
By deferring capital gains taxes through a 1031 Exchange, investors are allowed to retain more of their profits for reinvestment and encouraged to move forward with real estate transactions that might otherwise be delayed or abandoned. This not only promotes the free flow of property transactions but also provides continuity for income-generating investment. Engaging in a 1031 Exchange can support portfolio growth, diversification, and the acquisition of higher-value properties. By moving from a lower-performing asset to one that generates greater income or appreciation potential, investors can enhance their long-term financial prospects. Additionally, 1031 Exchanges provide a strategic exit plan for property owners. For instance, farmers and ranchers approaching retirement can sell their properties without incurring immediate tax liabilities, allowing them to reinvest 100% of their proceeds into passive-income properties, such as multifamily residences or commercial real estate. This strategy not only secures their financial future but also encourages ongoing investment in their communities. 
Promoting Regional Investment and Development 
1031 Exchanges are a powerful tool in broadening investment opportunities. Investors are not limited to their local markets, as they can exchange properties across different states or regions. This flexibility enables them to diversify their holdings, reinvest in emerging markets with high growth potential, and acquire more productive like-kind properties. 1031 Exchanges also promote the efficient use of real estate. By encouraging property owners to sell underperforming assets and reinvest in more productive ones, the overall quality and productivity of properties within a market can improve. This can lead to revitalization in certain areas, driving further economic development and community growth. The resulting improvements can enhance property values, increase tax revenues for local governments, and contribute to a more dynamic economy.  
Job Creation 
Each individual 1031 Exchange transaction stimulates employment and business growth by engaging various industries. By allowing investors to defer capital gains taxes, 1031 Exchanges activate higher transaction volumes in the real estate market, increasing demand for services from agents, brokers, and appraisers. For example, when an investor upgrades to a more productive property, it often requires renovations or improvements, generating job opportunities in the construction industry for contractors, laborers, and related services. The changing of hands of property also boosts the need for property management services, creating jobs for leasing agents and maintenance staff. Additionally, executing a 1031 Exchange often requires legal and financial expertise, resulting in increased demand for attorneys, tax advisors, and Qualified Intermediaries. Ultimately, each 1031 Exchange employs many individuals across different fields, benefitting individuals, families, and the community at large. 
As we celebrate National 1031 Day, it’s important to acknowledge the lasting benefits that 1031 Exchanges offer to individuals, communities, and the overall US economy.  
Happy 1031 Day!  
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.       
 

Where Did the Term “1031 Exchange” Come From?  
The term “1031 Exchange” originates from Section 1031 of the Internal Revenue Code, established in 1954 as an amendment to the Federal Tax Code. This section codified the definition and rules for tax-deferred exchanges of like-kind properties, allowing investors to defer capital gains taxes when exchanging real estate or certain other property held for business or investment. Initially part of Section 112(b)(1) in the Revenue Act of 1921 (later renumbered in the Revenue Act of 1928), this section ultimately became known as Section 1031, leading to the term “1031 Exchange”. 
The Origins of Section 1031: The Revenue Act of 1921 
https://www.accruit.com/blog/history-1031-exchanges”>The Revenue Act of 1921 was pivotal in establishing tax-deferred exchanges, allowing investors to exchange properties without immediate capital gains tax. Section 202 of the Act required exchanged properties to be of similar use, or “like-kind,” to prevent investors from avoiding taxation by exchanging real estate for non-real estate assets. Congress noted that if no cash exchanged hands, the “continuity of an investment” should not trigger a taxable event. In 1954, an amendment to the Federal Tax Code clarified and strengthened the definition of a tax-deferred, like-kind exchange, establishing a clearer structure for real estate exchanges that shaped how 1031 Exchanges are conducted today.  
How 1031 Exchanges Benefit Investors and the Economy 
The https://www.accruit.com/blog/how-1031-exchanges-stimulate-economy”>bene… of 1031 Exchanges not only impact property owners, but also significantly contribute to economic growth. 
Encourages Real Estate Transactions and Ensures Investment Continuity   
By deferring capital gains taxes through a 1031 Exchange, investors are allowed to retain more of their profits for reinvestment and encouraged to move forward with real estate transactions that might otherwise be delayed or abandoned. This not only promotes the free flow of property transactions but also provides continuity for income-generating investment. Engaging in a 1031 Exchange can support portfolio growth, diversification, and the acquisition of higher-value properties. By moving from a lower-performing asset to one that generates greater income or appreciation potential, investors can enhance their long-term financial prospects. Additionally, 1031 Exchanges provide a strategic exit plan for property owners. For instance, farmers and ranchers approaching retirement can sell their properties without incurring immediate tax liabilities, allowing them to reinvest 100% of their proceeds into passive-income properties, such as multifamily residences or commercial real estate. This strategy not only secures their financial future but also encourages ongoing investment in their communities. 
Promoting Regional Investment and Development 
1031 Exchanges are a powerful tool in broadening investment opportunities. Investors are not limited to their local markets, as they can exchange properties across different states or regions. This flexibility enables them to diversify their holdings, reinvest in emerging markets with high growth potential, and acquire more productive like-kind properties. 1031 Exchanges also promote the efficient use of real estate. By encouraging property owners to sell underperforming assets and reinvest in more productive ones, the overall quality and productivity of properties within a market can improve. This can lead to revitalization in certain areas, driving further economic development and community growth. The resulting improvements can enhance property values, increase tax revenues for local governments, and contribute to a more dynamic economy.  
Job Creation 
Each individual 1031 Exchange transaction stimulates employment and business growth by engaging various industries. By allowing investors to defer capital gains taxes, 1031 Exchanges activate higher transaction volumes in the real estate market, increasing demand for services from agents, brokers, and appraisers. For example, when an investor upgrades to a more productive property, it often requires renovations or improvements, generating job opportunities in the construction industry for contractors, laborers, and related services. The changing of hands of property also boosts the need for property management services, creating jobs for leasing agents and maintenance staff. Additionally, executing a 1031 Exchange often requires legal and financial expertise, resulting in increased demand for attorneys, tax advisors, and Qualified Intermediaries. Ultimately, each 1031 Exchange employs many individuals across different fields, benefitting individuals, families, and the community at large. 
As we celebrate National 1031 Day, it’s important to acknowledge the lasting benefits that 1031 Exchanges offer to individuals, communities, and the overall US economy.  
Happy 1031 Day!  
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.       
 

Where Did the Term “1031 Exchange” Come From?  
The term “1031 Exchange” originates from Section 1031 of the Internal Revenue Code, established in 1954 as an amendment to the Federal Tax Code. This section codified the definition and rules for tax-deferred exchanges of like-kind properties, allowing investors to defer capital gains taxes when exchanging real estate or certain other property held for business or investment. Initially part of Section 112(b)(1) in the Revenue Act of 1921 (later renumbered in the Revenue Act of 1928), this section ultimately became known as Section 1031, leading to the term “1031 Exchange”. 
The Origins of Section 1031: The Revenue Act of 1921 
https://www.accruit.com/blog/history-1031-exchanges”>The Revenue Act of 1921 was pivotal in establishing tax-deferred exchanges, allowing investors to exchange properties without immediate capital gains tax. Section 202 of the Act required exchanged properties to be of similar use, or “like-kind,” to prevent investors from avoiding taxation by exchanging real estate for non-real estate assets. Congress noted that if no cash exchanged hands, the “continuity of an investment” should not trigger a taxable event. In 1954, an amendment to the Federal Tax Code clarified and strengthened the definition of a tax-deferred, like-kind exchange, establishing a clearer structure for real estate exchanges that shaped how 1031 Exchanges are conducted today.  
How 1031 Exchanges Benefit Investors and the Economy 
The https://www.accruit.com/blog/how-1031-exchanges-stimulate-economy”>bene… of 1031 Exchanges not only impact property owners, but also significantly contribute to economic growth. 
Encourages Real Estate Transactions and Ensures Investment Continuity   
By deferring capital gains taxes through a 1031 Exchange, investors are allowed to retain more of their profits for reinvestment and encouraged to move forward with real estate transactions that might otherwise be delayed or abandoned. This not only promotes the free flow of property transactions but also provides continuity for income-generating investment. Engaging in a 1031 Exchange can support portfolio growth, diversification, and the acquisition of higher-value properties. By moving from a lower-performing asset to one that generates greater income or appreciation potential, investors can enhance their long-term financial prospects. Additionally, 1031 Exchanges provide a strategic exit plan for property owners. For instance, farmers and ranchers approaching retirement can sell their properties without incurring immediate tax liabilities, allowing them to reinvest 100% of their proceeds into passive-income properties, such as multifamily residences or commercial real estate. This strategy not only secures their financial future but also encourages ongoing investment in their communities. 
Promoting Regional Investment and Development 
1031 Exchanges are a powerful tool in broadening investment opportunities. Investors are not limited to their local markets, as they can exchange properties across different states or regions. This flexibility enables them to diversify their holdings, reinvest in emerging markets with high growth potential, and acquire more productive like-kind properties. 1031 Exchanges also promote the efficient use of real estate. By encouraging property owners to sell underperforming assets and reinvest in more productive ones, the overall quality and productivity of properties within a market can improve. This can lead to revitalization in certain areas, driving further economic development and community growth. The resulting improvements can enhance property values, increase tax revenues for local governments, and contribute to a more dynamic economy.  
Job Creation 
Each individual 1031 Exchange transaction stimulates employment and business growth by engaging various industries. By allowing investors to defer capital gains taxes, 1031 Exchanges activate higher transaction volumes in the real estate market, increasing demand for services from agents, brokers, and appraisers. For example, when an investor upgrades to a more productive property, it often requires renovations or improvements, generating job opportunities in the construction industry for contractors, laborers, and related services. The changing of hands of property also boosts the need for property management services, creating jobs for leasing agents and maintenance staff. Additionally, executing a 1031 Exchange often requires legal and financial expertise, resulting in increased demand for attorneys, tax advisors, and Qualified Intermediaries. Ultimately, each 1031 Exchange employs many individuals across different fields, benefitting individuals, families, and the community at large. 
As we celebrate National 1031 Day, it’s important to acknowledge the lasting benefits that 1031 Exchanges offer to individuals, communities, and the overall US economy.  
Happy 1031 Day!  
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.       
 

Maximize Retirement Contributions 
One of the easiest ways to lower taxable income is by contributing to retirement accounts like a 401(k) or IRA. For 2024, the contribution limits for 401(k)s are $23,000, with an additional $7,500 catch-up contribution allowed for those 50 or older. Maxing out 401(k) contributions not only boosts retirement savings but also reduces taxable income, as contributions are made pre-tax. Contributions to traditional IRAs are also tax-deductible, with a maximum limit of $7,000, with an additional $1,000 catch-up contribution for individuals 50 or older. Contributions to a Roth IRA are not tax-deductible, but they grow tax-free and allow for qualified withdrawals in retirement. Individuals who are self-employed can contribute to a SEP IRA or Solo 401(k), with limits based on earnings. For SEP IRAs, you can contribute up to 25% of your income, with a maximum of $69,000 for 2024. These contributions can reduce your taxable income and grow tax-deferred until retirement. Maxing out retirement contributions before the year closes out can save you current or long-term taxes as well as ensure long-term financial security.  
Harvest Investment Losses 
Tax-loss harvesting is another useful strategy to consider before year-end. Tax-loss harvesting is the strategic sale of assets at a loss to offset capital gains taxes owed from selling profitable assets. It’s often used to reduce short-term capital gains, which are taxed at higher rates than long-term gains. Investors typically employ this tactic at the end of the year to minimize taxes by selling investments that have decreased in value to claim a credit against their gains. For 2024, up to $3,000 of net losses can be used to offset ordinary income, with any remaining losses carried over to future years. With this, it is important to not only be aware that selling an asset at a loss disrupts the balance of a portfolio, but to avoid a wash-sale scenario.   
The Wash-Sale Rule 
The wash-sale rule is an IRS regulation that disallows a tax deduction on an asset sold at a loss if the same or a “substantially identical” asset is repurchased within 30 days before or after the sale. This rule prevents investors from selling assets just to claim a tax benefit and quickly buying them back. In a wash sale, the loss is not deductible but added to the cost basis of the new purchase. Violating the rule can lead to fines or trading restrictions. 
Take Advantage of Expiring Tax Provisions 
Certain tax provisions are set to expire at the end of 2024 and could provide one-time benefits that won’t be available in future tax years, possibly yielding significant savings. For example, the temporary provision for bonus depreciation for businesses is set to change in 2025. In 2024, eligible businesses can deduct up to 80% of the cost of qualified assets, like equipment and machinery, in the year they are put into use. However, this rate will decrease to 60% next year, so it’s important to make purchases or invest in qualifying assets before December 31 to benefit from the higher deduction. Additionally, the expanded Child Tax Credit, which was temporarily raised to $3,600 per child under 6 and $3,000 for children aged 6 to 17 under previous COVID-19 relief laws, may return to lower amounts unless extended by Congress. Eligible families should make sure they claim the full credit available for 2024. Other expiring tax benefits may involve temporary deductions, credits, or incentives introduced through recent legislation, such as tax credits for energy-efficient home improvements, including solar panel installations. Some of these provisions are specific to certain years or projects, so reviewing any applicable expiring credits, such as those for residential energy efficiency upgrades, can help you maximize savings before the end of year. 
Review Your Tax Withholding and Estimated Payments 
Lastly, it’s important to review your tax withholding or estimated tax payments to avoid underpayment penalties. If you’ve experienced significant income changes in 2024, adjusting your withholding now can prevent surprises when you file your return. 
Start by checking your paycheck and W-4 form to ensure your withholding aligns with your tax obligations. If you’ve had too much withheld, adjusting your W-4 now can increase your take-home pay. If you’ve withheld too little, you may owe taxes when filing and face penalties. For self-employed individuals or those with additional income, review your estimated tax payments. Ensure you’ve made sufficient quarterly payments, especially if your income has fluctuated. Adjusting your remaining estimated payments can help avoid underpayment penalties. 
1031 Exchanges and Real Estate Tax Considerations 
If you’re in the real estate sector or thinking about selling investment property, consider using a 1031 Exchange to defer capital gains taxes. A 1031 Exchange allows you to reinvest proceeds from the sale of real estate into a new property without immediately paying taxes associated with the real estate transaction. This is particularly useful if you’re selling at year-end but don’t want to realize the gain in 2024. For more on how to structure a 1031 Exchange, consult a Qualified Intermediary like Accruit. 
For investors who are on the fence about selling property in Q4 or delaying listing the property until Q1 2025, https://www.accruit.com/blog/1031-exchange-tax-straddling-2023″>1031 tax straddling could be a compelling reason to list the property now rather than waiting until 2025. If a 1031 Exchange spans multiple tax years, i.e. is started in 2024, but the 180-day exchange period extends into 2025, and the Exchanger fails to identify or acquire Replacement Property, the Exchanger may still be able to defer capital gains taxes until the 2025 tax due date under IRS Installment Sale rules (Section 453). This provides flexibility in managing tax obligations, even in failed exchanges.  
Conducting a 1031 Exchange in Q4 can provide flexibility. If the exchange fails due to missed deadlines, any returned funds become taxable in 2024. However, the default reporting allows for the deferral of capital gains payment on the sale of the Relinquished Property until the 2025 taxes are due, which coincides with the deadline for filing individual 2025 tax returns. By combining Section 1031 with Section 453, Exchangers can report exchange funds as income in the year received rather than the year of the sale, which provides a potential benefit for those considering a Q4 sale.  
An additional consideration for 1031 Exchanges started in Q4 of 2024 is to ensure you get the full 180-day exchange period. Specifically for 1031 Exchanges started after October 18th, it is important to plan your tax filing accordingly. The exchange deadline would be the individuals tax return due date, which is April 15th, rather than day 180 which would fall after April 15th. To take full advantage of the 180-day exchange period, you will need tohttps://www.accruit.com/blog/what-happens-if-1031-exchange-spans-two-ta…; file an extension for your 2024 taxes. Keep in mind that for individuals in Maine and Massachusetts, the tax filing deadline is April 17th, 2025. Other states, such as Delaware, Iowa, Louisiana, and Virginia may have differing deadlines for filing state tax returns. By filing an extension, you can utilize the entire 180-day period to complete your exchange without the pressure of an imminent tax return deadline.  
By reviewing and implementing these tax strategies now, you can significantly reduce your 2024 tax burden and set yourself up for financial success in the coming year. Always consult with a tax professional to personalize your strategy and ensure you’re making the most of available opportunities. 
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice. 

Maximize Retirement Contributions 
One of the easiest ways to lower taxable income is by contributing to retirement accounts like a 401(k) or IRA. For 2024, the contribution limits for 401(k)s are $23,000, with an additional $7,500 catch-up contribution allowed for those 50 or older. Maxing out 401(k) contributions not only boosts retirement savings but also reduces taxable income, as contributions are made pre-tax. Contributions to traditional IRAs are also tax-deductible, with a maximum limit of $7,000, with an additional $1,000 catch-up contribution for individuals 50 or older. Contributions to a Roth IRA are not tax-deductible, but they grow tax-free and allow for qualified withdrawals in retirement. Individuals who are self-employed can contribute to a SEP IRA or Solo 401(k), with limits based on earnings. For SEP IRAs, you can contribute up to 25% of your income, with a maximum of $69,000 for 2024. These contributions can reduce your taxable income and grow tax-deferred until retirement. Maxing out retirement contributions before the year closes out can save you current or long-term taxes as well as ensure long-term financial security.  
Harvest Investment Losses 
Tax-loss harvesting is another useful strategy to consider before year-end. Tax-loss harvesting is the strategic sale of assets at a loss to offset capital gains taxes owed from selling profitable assets. It’s often used to reduce short-term capital gains, which are taxed at higher rates than long-term gains. Investors typically employ this tactic at the end of the year to minimize taxes by selling investments that have decreased in value to claim a credit against their gains. For 2024, up to $3,000 of net losses can be used to offset ordinary income, with any remaining losses carried over to future years. With this, it is important to not only be aware that selling an asset at a loss disrupts the balance of a portfolio, but to avoid a wash-sale scenario.   
The Wash-Sale Rule 
The wash-sale rule is an IRS regulation that disallows a tax deduction on an asset sold at a loss if the same or a “substantially identical” asset is repurchased within 30 days before or after the sale. This rule prevents investors from selling assets just to claim a tax benefit and quickly buying them back. In a wash sale, the loss is not deductible but added to the cost basis of the new purchase. Violating the rule can lead to fines or trading restrictions. 
Take Advantage of Expiring Tax Provisions 
Certain tax provisions are set to expire at the end of 2024 and could provide one-time benefits that won’t be available in future tax years, possibly yielding significant savings. For example, the temporary provision for bonus depreciation for businesses is set to change in 2025. In 2024, eligible businesses can deduct up to 80% of the cost of qualified assets, like equipment and machinery, in the year they are put into use. However, this rate will decrease to 60% next year, so it’s important to make purchases or invest in qualifying assets before December 31 to benefit from the higher deduction. Additionally, the expanded Child Tax Credit, which was temporarily raised to $3,600 per child under 6 and $3,000 for children aged 6 to 17 under previous COVID-19 relief laws, may return to lower amounts unless extended by Congress. Eligible families should make sure they claim the full credit available for 2024. Other expiring tax benefits may involve temporary deductions, credits, or incentives introduced through recent legislation, such as tax credits for energy-efficient home improvements, including solar panel installations. Some of these provisions are specific to certain years or projects, so reviewing any applicable expiring credits, such as those for residential energy efficiency upgrades, can help you maximize savings before the end of year. 
Review Your Tax Withholding and Estimated Payments 
Lastly, it’s important to review your tax withholding or estimated tax payments to avoid underpayment penalties. If you’ve experienced significant income changes in 2024, adjusting your withholding now can prevent surprises when you file your return. 
Start by checking your paycheck and W-4 form to ensure your withholding aligns with your tax obligations. If you’ve had too much withheld, adjusting your W-4 now can increase your take-home pay. If you’ve withheld too little, you may owe taxes when filing and face penalties. For self-employed individuals or those with additional income, review your estimated tax payments. Ensure you’ve made sufficient quarterly payments, especially if your income has fluctuated. Adjusting your remaining estimated payments can help avoid underpayment penalties. 
1031 Exchanges and Real Estate Tax Considerations 
If you’re in the real estate sector or thinking about selling investment property, consider using a 1031 Exchange to defer capital gains taxes. A 1031 Exchange allows you to reinvest proceeds from the sale of real estate into a new property without immediately paying taxes associated with the real estate transaction. This is particularly useful if you’re selling at year-end but don’t want to realize the gain in 2024. For more on how to structure a 1031 Exchange, consult a Qualified Intermediary like Accruit. 
For investors who are on the fence about selling property in Q4 or delaying listing the property until Q1 2025, https://www.accruit.com/blog/1031-exchange-tax-straddling-2023″>1031 tax straddling could be a compelling reason to list the property now rather than waiting until 2025. If a 1031 Exchange spans multiple tax years, i.e. is started in 2024, but the 180-day exchange period extends into 2025, and the Exchanger fails to identify or acquire Replacement Property, the Exchanger may still be able to defer capital gains taxes until the 2025 tax due date under IRS Installment Sale rules (Section 453). This provides flexibility in managing tax obligations, even in failed exchanges.  
Conducting a 1031 Exchange in Q4 can provide flexibility. If the exchange fails due to missed deadlines, any returned funds become taxable in 2024. However, the default reporting allows for the deferral of capital gains payment on the sale of the Relinquished Property until the 2025 taxes are due, which coincides with the deadline for filing individual 2025 tax returns. By combining Section 1031 with Section 453, Exchangers can report exchange funds as income in the year received rather than the year of the sale, which provides a potential benefit for those considering a Q4 sale.  
An additional consideration for 1031 Exchanges started in Q4 of 2024 is to ensure you get the full 180-day exchange period. Specifically for 1031 Exchanges started after October 18th, it is important to plan your tax filing accordingly. The exchange deadline would be the individuals tax return due date, which is April 15th, rather than day 180 which would fall after April 15th. To take full advantage of the 180-day exchange period, you will need tohttps://www.accruit.com/blog/what-happens-if-1031-exchange-spans-two-ta…; file an extension for your 2024 taxes. Keep in mind that for individuals in Maine and Massachusetts, the tax filing deadline is April 17th, 2025. Other states, such as Delaware, Iowa, Louisiana, and Virginia may have differing deadlines for filing state tax returns. By filing an extension, you can utilize the entire 180-day period to complete your exchange without the pressure of an imminent tax return deadline.  
By reviewing and implementing these tax strategies now, you can significantly reduce your 2024 tax burden and set yourself up for financial success in the coming year. Always consult with a tax professional to personalize your strategy and ensure you’re making the most of available opportunities. 
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice. 

Maximize Retirement Contributions 
One of the easiest ways to lower taxable income is by contributing to retirement accounts like a 401(k) or IRA. For 2024, the contribution limits for 401(k)s are $23,000, with an additional $7,500 catch-up contribution allowed for those 50 or older. Maxing out 401(k) contributions not only boosts retirement savings but also reduces taxable income, as contributions are made pre-tax. Contributions to traditional IRAs are also tax-deductible, with a maximum limit of $7,000, with an additional $1,000 catch-up contribution for individuals 50 or older. Contributions to a Roth IRA are not tax-deductible, but they grow tax-free and allow for qualified withdrawals in retirement. Individuals who are self-employed can contribute to a SEP IRA or Solo 401(k), with limits based on earnings. For SEP IRAs, you can contribute up to 25% of your income, with a maximum of $69,000 for 2024. These contributions can reduce your taxable income and grow tax-deferred until retirement. Maxing out retirement contributions before the year closes out can save you current or long-term taxes as well as ensure long-term financial security.  
Harvest Investment Losses 
Tax-loss harvesting is another useful strategy to consider before year-end. Tax-loss harvesting is the strategic sale of assets at a loss to offset capital gains taxes owed from selling profitable assets. It’s often used to reduce short-term capital gains, which are taxed at higher rates than long-term gains. Investors typically employ this tactic at the end of the year to minimize taxes by selling investments that have decreased in value to claim a credit against their gains. For 2024, up to $3,000 of net losses can be used to offset ordinary income, with any remaining losses carried over to future years. With this, it is important to not only be aware that selling an asset at a loss disrupts the balance of a portfolio, but to avoid a wash-sale scenario.   
The Wash-Sale Rule 
The wash-sale rule is an IRS regulation that disallows a tax deduction on an asset sold at a loss if the same or a “substantially identical” asset is repurchased within 30 days before or after the sale. This rule prevents investors from selling assets just to claim a tax benefit and quickly buying them back. In a wash sale, the loss is not deductible but added to the cost basis of the new purchase. Violating the rule can lead to fines or trading restrictions. 
Take Advantage of Expiring Tax Provisions 
Certain tax provisions are set to expire at the end of 2024 and could provide one-time benefits that won’t be available in future tax years, possibly yielding significant savings. For example, the temporary provision for bonus depreciation for businesses is set to change in 2025. In 2024, eligible businesses can deduct up to 80% of the cost of qualified assets, like equipment and machinery, in the year they are put into use. However, this rate will decrease to 60% next year, so it’s important to make purchases or invest in qualifying assets before December 31 to benefit from the higher deduction. Additionally, the expanded Child Tax Credit, which was temporarily raised to $3,600 per child under 6 and $3,000 for children aged 6 to 17 under previous COVID-19 relief laws, may return to lower amounts unless extended by Congress. Eligible families should make sure they claim the full credit available for 2024. Other expiring tax benefits may involve temporary deductions, credits, or incentives introduced through recent legislation, such as tax credits for energy-efficient home improvements, including solar panel installations. Some of these provisions are specific to certain years or projects, so reviewing any applicable expiring credits, such as those for residential energy efficiency upgrades, can help you maximize savings before the end of year. 
Review Your Tax Withholding and Estimated Payments 
Lastly, it’s important to review your tax withholding or estimated tax payments to avoid underpayment penalties. If you’ve experienced significant income changes in 2024, adjusting your withholding now can prevent surprises when you file your return. 
Start by checking your paycheck and W-4 form to ensure your withholding aligns with your tax obligations. If you’ve had too much withheld, adjusting your W-4 now can increase your take-home pay. If you’ve withheld too little, you may owe taxes when filing and face penalties. For self-employed individuals or those with additional income, review your estimated tax payments. Ensure you’ve made sufficient quarterly payments, especially if your income has fluctuated. Adjusting your remaining estimated payments can help avoid underpayment penalties. 
1031 Exchanges and Real Estate Tax Considerations 
If you’re in the real estate sector or thinking about selling investment property, consider using a 1031 Exchange to defer capital gains taxes. A 1031 Exchange allows you to reinvest proceeds from the sale of real estate into a new property without immediately paying taxes associated with the real estate transaction. This is particularly useful if you’re selling at year-end but don’t want to realize the gain in 2024. For more on how to structure a 1031 Exchange, consult a Qualified Intermediary like Accruit. 
For investors who are on the fence about selling property in Q4 or delaying listing the property until Q1 2025, https://www.accruit.com/blog/1031-exchange-tax-straddling-2023″>1031 tax straddling could be a compelling reason to list the property now rather than waiting until 2025. If a 1031 Exchange spans multiple tax years, i.e. is started in 2024, but the 180-day exchange period extends into 2025, and the Exchanger fails to identify or acquire Replacement Property, the Exchanger may still be able to defer capital gains taxes until the 2025 tax due date under IRS Installment Sale rules (Section 453). This provides flexibility in managing tax obligations, even in failed exchanges.  
Conducting a 1031 Exchange in Q4 can provide flexibility. If the exchange fails due to missed deadlines, any returned funds become taxable in 2024. However, the default reporting allows for the deferral of capital gains payment on the sale of the Relinquished Property until the 2025 taxes are due, which coincides with the deadline for filing individual 2025 tax returns. By combining Section 1031 with Section 453, Exchangers can report exchange funds as income in the year received rather than the year of the sale, which provides a potential benefit for those considering a Q4 sale.  
An additional consideration for 1031 Exchanges started in Q4 of 2024 is to ensure you get the full 180-day exchange period. Specifically for 1031 Exchanges started after October 18th, it is important to plan your tax filing accordingly. The exchange deadline would be the individuals tax return due date, which is April 15th, rather than day 180 which would fall after April 15th. To take full advantage of the 180-day exchange period, you will need tohttps://www.accruit.com/blog/what-happens-if-1031-exchange-spans-two-ta…; file an extension for your 2024 taxes. Keep in mind that for individuals in Maine and Massachusetts, the tax filing deadline is April 17th, 2025. Other states, such as Delaware, Iowa, Louisiana, and Virginia may have differing deadlines for filing state tax returns. By filing an extension, you can utilize the entire 180-day period to complete your exchange without the pressure of an imminent tax return deadline.  
By reviewing and implementing these tax strategies now, you can significantly reduce your 2024 tax burden and set yourself up for financial success in the coming year. Always consult with a tax professional to personalize your strategy and ensure you’re making the most of available opportunities. 
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.