Looking at a 1031 Exchange By Mel Feller, MPA, MHR Mel Feller Seminars, Coaching For Success 360 Inc. /Mel Feller Coaching Let’s look at 1031 tax deferred exchanges. Named after the IRS tax code that permits such transactions, 1031 exchanges allow investors to defer paying taxes on property they buy and sell as long as the transactions occur within a 180-day time span and the funds are placed with an exchange facilitator or accommodator. I cannot stress enough the importance of working with a ‘qualified’ qualified intermediary, or QI. While knowledge, experience and a certain level of coverage or fidelity coverage is significant, the financial backing of the company, strict adherence to financial reporting and disclosure requirements hold even more importance.

1. Looking at a 1031 Exchange
By Mel Feller, MPA, MHR
Mel Feller Seminars, Coaching For Success 360 Inc. /Mel Feller Coaching
Let’s look at 1031 tax deferred exchanges. Named after the IRS tax code that permits such
transactions, 1031 exchanges allow investors to defer paying taxes on property they buy and
sell as long as the transactions occur within a 180-day
time span and the funds are placed with an exchange
facilitator or accommodator. I cannot stress enough the
importance of working with a ‘qualified’ qualified
intermediary, or QI. While knowledge, experience and a
certain level of coverage or fidelity coverage is
significant, the financial backing of the company, strict
adherence to financial reporting and disclosure
requirements hold even more importance.
I have listed the Mel Feller guidelines to follow in order for a taxpayer to defer all the taxable
gain. However, ALWAYS check with IRS or an attorney to make sure you are following the
latest rules.
The value of the replacement property must be equal to or greater than the value of the
relinquished property.
The equity in the replacement property must be equal to or greater than the equity in the
relinquished property.
The debt on the replacement property must be equal to or greaterthan the debt on the
relinquished property.
All of the net proceeds from the sale of the relinquished property must be used to acquire the
replacement property.
To understand the powerful protection a 1031 exchange offers, consider the following
example:
Looking at a 1031 Exchange by Mel Feller

2. Assume an investor has $400,000 in gain and $400,000 in net proceeds after closing. Assuming
an investor with a $400,000 capital gain and incurs a tax liability of approximately $140,000 in
combined taxes (depreciation recapture, federal capital gain tax, state capital gain tax, and net
investment income tax) when the property is sold. Only $260,000 in net equity remains to
reinvest in another property.
Assuming a 25% down payment and taking on new financing for the purchase with a 75% loan-
to-value ratio, the investor would only be able to purchase a $1,040,000 replacement property.
If the same investor chose to exchange, however, he or she would be able to reinvest the entire
gross equity of $400,000 in the purchase of $1,600,000 replacement property, assuming the
same down payment and loan-to-value ratios.
As the above example demonstrates, tax-deferred exchanges allow investors to defer capital
gain taxes as well as facilitate significant portfolio growth and increased return on investment.
In order to access the full potential of these benefits, it is crucial to have a comprehensive
knowledge of the exchange process and the Section 1031 code. For instance, an accurate
understanding of the key term like-kind – often mistakenly thought to mean the same exact
types of property – can reveal possibilities that might have been dismissed or overlooked.
Mel Feller, MPA, MHR, is a well-known real estate business consultant and speaker, specializing
in performance, productivity, and profits. Mel is the president of Mel Feller Seminars with
Coaching For Success, Inc. and Mel Feller Coaching, a real estate and business specific coaching
company. His three books for real estate professionals are systems on how to become an
exceptional sales performer. His four books in Business and Government Grants are ways to
leverage and increase your business Success in both time and money!