1031 Exchange Real Estate Trends in 2022 | DST Investment

With the ever-changing real estate market, it’s difficult to predict what trends will come and go. However, if you’re considering doing a 1031 exchange in order to defer your capital gains taxes, it’s important to be aware of the anticipated real estate trends in order to make the best decision for your investment.

In this article, we’ll cover the basics of the 1031 exchange before diving into the real estate trends that are expected in 2022.

What is 1031 Exchange?

1031 exchange is a tax-deferred exchange method where an investor can sell an investment property and reinvest the proceeds into another “like-kind” property. In order to qualify for the 1031 exchange, the following requirements must be met:

-The sale of the property must be an “arms-length” transaction between two unrelated parties.

-The property must be held for investment or business purposes, not personal use.

-Both properties must be located in the United States.

If you meet the qualifications for 1031 exchange, you can defer paying your capital gains taxes on the sale of your investment property by rolling over the proceeds into another investment property.

1031 exchange is a complex process, so it’s important to work with a qualified intermediary (QI) in order to ensure that the exchange is done correctly.

Now that we’ve covered the basics of 1031 exchange, let’s take a look at the 1031 exchange trends that are expected in 2022.

1031 Exchange Trends in 2022

1. Increased popularity of 1031 exchange

Due to the many benefits of the 1031 exchange, it’s anticipated that this method will continue to gain popularity in 2022. More and more investors are becoming aware of the tax deferral opportunities that the 1031 exchange offers, and as a result, we expect to see an increase in the number of exchanges being completed.

2. Relocations exchanges will become more common

Another trend that we anticipate seeing in 2022 is an increase in the number of “relocation” exchanges. This type of exchange occurs when an investor sells a property in one location and uses the proceeds to purchase a property in another location.

The most popular relocation exchanges are those that involve exchanging property in a high-tax state for property in a low-tax state. With the recent changes to the tax laws, many investors are looking for ways to minimize their tax liability, and relocating to a lower-tax state is one way to do this.

3. More investors will use a 1031 exchange to defer gains on rental properties

As the rental market continues to strengthen, we expect to see more investors using the 1031 exchange to defer their gains on rental properties. The 1031 exchange provides a great opportunity for investors to exchange their existing rental property for a larger or more expensive rental property, without having to pay any capital gains taxes.

4. Demand for office space will continue to increase

The COVID-19 pandemic has caused a major shift in the way that people work, and as a result, the demand for office space has decreased. However, as more businesses return to in-person operations, we anticipate that the demand for office space will start to increase again.

This is good news for investors who own office buildings, as they may be able to take advantage of the increased demand by exchanging their property for a more expensive office building.

5. Multi-family properties will remain popular

The popularity of multi-family properties is expected to continue in 2022 as more people move into urban areas. Multi-family properties offer an excellent opportunity for investors to own a property with multiple units, which can provide a steadier income stream than a single-family home.

6. Industrial properties will continue to be in demand

The COVID-19 pandemic has caused a major shift in the way that people shop, with more people opting to shop online instead of in person. As a result, the demand for industrial properties (e.g., warehouses) has increased, as these types of properties are needed to store and ship goods.

Investors who own industrial properties may be able to take advantage of the increased demand by exchanging their property for a more expensive industrial property.

7. The 1031 exchange will become more popular with foreign investors

Foreign investors are already taking advantage of the 1031 exchange, and we expect this trend to continue in 2022. The 1031 exchange provides a great opportunity for foreign investors to defer their capital gains taxes when they sell a U.S. investment property.

8. Baby boomers will increasingly use the 1031 exchange

As baby boomers approach retirement, we expect to see more of them using the 1031 exchange to defer their capital gains taxes. The 1031 exchange can be a great way for baby boomers to preserve their wealth and pass it on to their heirs.

Final Thoughts

The 1031 exchange is a powerful tool that can be used to defer capital gains taxes and reinvest in another property. With the recent changes to the tax laws, we anticipate that the 1031 exchange will become even more popular in 2022. If you’re thinking about selling an investment property, consider using a 1031 exchange to delay your taxes and reinvest in another property.

Reach out to our team of dedicated professionals today for more information about how we can help you with your 1031 exchange today!

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