The Strategic Edge: How 1031 Exchanges Fuel Real Estate Growth and Tax Efficiency

ARTICLE | May 02, 2025

In the high-stakes world of real estate investing, few tax strategies generate as much interest—or confusion—as the 1031 exchange. With market volatility, shifting regulations, and increasing investor sophistication, the ability to defer capital gains taxes and reinvest untapped equity has never been more valuable. Yet, despite its longevity in the tax code, the 1031 exchange remains one of the most underutilized and misunderstood tools available to property owners. At ABC Accounting, our Real Estate Division, led by Don Breckenridge, specializes in bringing clarity and strategic insight to this powerful opportunity.

A 1031 exchange, named after the relevant section of the Internal Revenue Code, allows investors to defer capital gains taxes on the sale of business or investment real estate, provided the proceeds are reinvested in a “like-kind” property. The technical requirements of the process—identifying potential replacements within 45 days, closing within 180 days, and working through a qualified intermediary—are well-documented. But the real expertise lies in understanding who can benefit, what the broader advantages are, and how to craft the right strategy.

Contrary to popular belief, 1031 exchanges are not the exclusive province of large commercial developers. Residential landlords, owners of raw land, family offices planning generational wealth transfers, and even small business owners with investment properties are among those who stand to gain. The appeal is broad because the benefits are substantial. At its core, the 1031 exchange is about preservation and growth of capital. By deferring the immediate tax hit—potentially as much as 30 percent of the gain when combining federal and state liabilities—investors retain more capital to redeploy. Over time, this can mean the difference between incremental and exponential portfolio growth.

The advantages extend well beyond simple tax deferral. Investors are able to reposition their portfolios with agility, shifting from one asset class to another or moving into new geographic markets without triggering a taxable event. For example, a landlord might exchange a single, high-maintenance property for several smaller units, diversifying risk and improving cash flow. Land developers may trade undeveloped parcels for income-producing buildings, accelerating returns while maintaining tax efficiency. Moreover, the 1031 exchange is a potent tool for estate planning: by holding property until death, heirs may benefit from a stepped-up basis, erasing decades of deferred gains and reshaping the economics of generational wealth transfer.

Strategic use of the 1031 exchange goes far beyond the textbook transaction. Sophisticated investors, often with guidance from experienced advisors, deploy advanced structures such as reverse exchanges—where a replacement property is acquired before the original is sold—or build-to-suit exchanges, which allow for improvements to the new property within the exchange period. These strategies require precise execution and deep technical knowledge, as IRS scrutiny is rigorous and the consequences of noncompliance can be severe.

Success in the 1031 realm is not merely a matter of following checklists. It demands a holistic, forward-looking approach, especially as the regulatory environment continues to evolve. Intent matters: the IRS closely examines whether both the relinquished and replacement properties are truly held for investment or business use, and timelines must be met without exception. In this environment, working with a firm that combines technical acumen with practical experience is essential.

This is where ABC Accounting’s Real Estate Division, under Don Breckenridge’s leadership, delivers distinct value. Our approach is rooted in proactive planning and tailored guidance. We collaborate closely with clients from the earliest stages of consideration, helping them map out objectives, evaluate alternative strategies, and anticipate challenges before they arise. Our team manages the intricate documentation, coordinates with qualified intermediaries, and provides scenario analysis to illuminate the financial impact of every decision. The result is a 1031 exchange process that is not only compliant, but strategically aligned with the client’s long-term goals.

For real estate investors and business owners, the 1031 exchange remains a cornerstone of tax-efficient growth. But its true potential is realized only when leveraged with expertise and vision. As the market continues to shift and opportunities emerge, leaders in the field must be prepared to act decisively and intelligently. At ABC Accounting, we stand ready to guide clients through the complexities of 1031 exchanges—helping them safeguard their capital, expand their portfolios, and secure their legacy for generations to come.