Tax and Other Potential Benefits of a 1031 Exchange

A 1031 exchange provides Michigan investors numerous potential benefits. Here are the most common reasons investors might select a 1031 exchange when selling real estate.
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Defer Capital Gains

Investors who sell real estate are responsible for paying taxes on capital gains. Often, this can result in a hefty payout. Those looking to keep their capital invested in real estate can opt for a 1031 exchange, which allows them to defer paying capital gains.

Reset Depreciation

Per the IRS, a property has a useful life of 27.5 years. Over that time, the property depreciates. However, investors can deduct a percentage of the property’s cost basis from their annual income to reduce the amount of income subject to taxation. This allows them to recover the costs of wear and tear, deterioration, and obsolescence of the property while it is in use. A 1031 exchange resets this depreciation schedule, allowing investors to continue enjoying this tax advantage.

Trade Up & Build Wealth

Not all properties are created equal, and investors can trade up via a 1031 exchange to strive to improve their financial position. Those who started investing by purchasing smaller assets can consolidate their investments, acquiring higher-quality assets that require less maintenance. Often, this allows investors to build their wealth.

Meet Investment Objectives

Investment strategies often change over time, and a 1031 exchange enables investors to trade properties into their portfolios to meet their evolving objectives better. For example, an investor who moves to a new state may want to move investments closer, or the investor may want to trade asset types.

Increase Portfolio Diversification

Diversification is key to maintaining wealth. Investors can use a 1031 exchange to diversify their portfolio – they can include properties in different markets and asset classes. For example, an investor can trade two retail buildings into one retail property and one multifamily asset to ensure that at least one property is resistant to economic downturns.

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Perch Wealth is focused on delivering the highest quality service investors deserve. For those new to 1031 exchanges or alternative investment solutions, the team at Perch Wealth can provide in-depth knowledge and resources to ensure every client makes the right decision for their future.
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Securities offered through Emerson Equity LLC, member FINRA / SIPC. This is not an offer to buy or sell securities. Securities investing carries an inherent risk of loss of some or all of the principal invested. We are not tax professionals. You should always discuss your investments with a tax professional prior to investing. Securities are sold only in those states where Emerson Equity LLC is registered. Perch Wealth LLC and Emerson Equity LLC are not affiliated. COMPANY and Emerson Equity LLC do not provide legal or tax advice. Securities offered through Emerson Equity LLC Member FINRA / SIPC and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein.
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Perch Financial LLC and Emerson Equity LLC do not provide legal or tax advice. Securities offered through Emerson Equity LLC Member FINRA/SIPC and MSRB registered. Emerson Equity LLC is unaffiliated with any entity herein. 1031 Risk Disclosure:


  • There is no guarantee that any strategy will be successful or achieve investment objectives;
  • Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
  • Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;
  • Potential for foreclosure – All financed real estate investments have potential for foreclosure; ·Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments;
  • Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;
  • Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits

No offer to buy or sell securities is being made. Such offers may only be made to qualified accredited investors via private placement memorandum. Risks detailed in a private placement memorandum should be carefully reviewed, understood, and considered before making such an investment. Prospective strategies and products used in any tax advantaged investment planning should be reviewed independently with your tax and legal advisors. Changes to the tax code and other regulatory revisions could have a negative impact upon strategies developed and recommendations made. Past performance and/or forward-looking statements are never an assurance of future results.

Many of the investments offered will be only available to those investors meeting the definition of an Accredited Investor under SEC Rule 501(A) and offered as Regulation D private placement securities via a Private Placement Memorandum (“PPM”). Prospective investors must receive, read, and understand all the risks associated with buying private placement securities. Investments are not guaranteed or FDIC insured and risks may include but are not limited to illiquidity, no guarantee of income or guarantee that all tax advantages or objectives will be met and complete loss of principal investment could occur.

Risk Disclosure: Alternative investment products, including real estate investments, notes & debentures, hedge funds and private equity, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss.

NO OFFER OR SOLICITATION: The contents of this website: (i) do not constitute an offer of securities or a solicitation of an offer to buy of securities, and (ii) may not be relied upon in making an investment decision related to any investment offering by Perch Financial LLC, Emerson Equity LLC, or any affiliate, or partner thereof. Perch Financial LLC does not warrant the accuracy or completeness of the information contained herein.