Investors are asking more 1031 Exchange questions than ever, and many of them are showing up on Reddit. Some want to know if a partial Exchange is worth the effort. Others are trying to decide whether moving property into an S corporation makes sense. A few are comparing answers from AI tools with what their CPA told them and wondering which one to trust.
Before you make a tax decision based on a short online answer, you need to slow down and look at your numbers in context.
David Moore, CEO of Equity Advantage, has structured 1031 Exchange transactions for decades and has seen how one small structural decision can change the tax outcome years later. Tina Colson-Jones, head of sales for Equity Advantage, works directly with investors every day to evaluate not just the property being sold, but the long term direction of the portfolio. When clients call, the first step is understanding what they own, what their basis looks like, what their projected tax exposure will be, and where they intend to go next. Only after that analysis does it make sense to decide whether a 1031 Exchange moves them forward.
Here are some of the top Reddit 1031 Exchange questions, evaluated through that lens.
Is a Partial 1031 Exchange Worth It?
One of the most common Reddit questions asks whether it makes sense to complete a 1031 Exchange if only part of the taxes will be deferred.
The real answer depends on the math and on the investor’s broader financial picture.
A 1031 Exchange allows you to defer taxes by reinvesting into replacement property, but the gain and your basis carry forward into the next property. That means every future transaction builds on what you do today. If you reinvest less than your adjusted tax basis, the deferral benefit may be minimal and may not justify the cost or effort involved.
To evaluate this properly, start with your projected tax liability. Gain equals the adjusted sales price minus your basis. Your basis equals what you paid plus capital improvements minus depreciation, and depreciation must be accounted for whether you claimed it or not.
On a typical long term investment property, investors often face 20% federal capital gains tax on appreciation, 25% depreciation recapture, state income tax, and potentially 3.8% net investment income tax. It is common to see roughly one third of the gain lost to taxes once everything is calculated.
If someone purchased a duplex for $70,000 and plans to sell for $142,500 but only intends to reinvest $57,500 into land, the numbers may not support an Exchange. Without sufficient reinvestment, a meaningful portion of the gain remains taxable.
Even so, headline numbers alone are not enough. Other losses, income levels, and state tax rates can shift the outcome. Reviewing a broker’s net sheet with a CPA should be the first step before deciding whether a partial 1031 Exchange makes financial sense.
What Happens If I Move My Property Into an S Corporation?
Another recurring Reddit question involves entity structure. Investors often ask whether placing real estate into an S corporation or C corporation provides tax advantages.
This is where long term planning becomes critical.
Consider a property acquired through a 1031 Exchange that included both investment use and personal residence use. Later, the property was moved into an S corporation. That change significantly limited future flexibility. Removing appreciated property from a corporation generally triggers tax, and a corporation does not qualify for Section 121 primary residence exclusion.
What once allowed the possibility of separating investment treatment from personal residence treatment became rigid. A single ownership change eliminated planning options that had previously been available.
While forming an entity can be simple, unwinding that structure after appreciation can create immediate tax exposure. Real estate should not be placed into S corporations or C corporations without fully understanding how that decision will affect a future sale.
Is 1031 Exchange Advice From AI or Online Forums Reliable?
Many Reddit users compare advice from AI tools and online forums with guidance from professionals. Online resources can provide general information, but they do not know your depreciation history, your ownership structure, or your long term investment goals.
A 1031 Exchange is more than paperwork. It is a strategic decision that can affect your tax position for years. For example, an investor facing significant boot who qualifies as an accredited investor might evaluate a Delaware Statutory Trust or a 721 UPREIT as part of a broader plan. In other situations, paying the tax may be more practical than forcing an Exchange that does not align with long term objectives.
The reliability of advice depends on whether someone is evaluating your entire financial situation rather than responding to a single isolated question.
How Do I Know If a 1031 Exchange Makes Financial Sense?
At its core, most Reddit questions come back to one issue: is the Exchange actually worth it?
Begin by identifying your opportunity cost. Calculate your projected tax liability using a broker’s net sheet and your CPA’s input. Then compare that tax cost to your reinvestment plan and any additional requirements that come with it.
If you intend to convert a replacement property into a primary residence, you may need to hold it as an investment property first. During that holding period, you may incur rental expenses elsewhere. Those costs should be factored into the decision.
Tax exposure is only one part of the equation. Taxes actually owed after offsets and planning may look different. Your broader financial position matters.
A 1031 Exchange should support a defined long term objective. When structured properly, it can preserve capital and maintain flexibility. When approached without strategy, it can create unnecessary complexity or limit future options.
If you are researching 1031 Exchange questions online and want answers grounded in your numbers and your long term plan, contact Equity Advantage and speak directly with an Exchange expert who can walk through your situation in detail.
The Guys With All The Answers…
David and Thomas Moore, the co-founders of Equity Advantage & IRA Advantage
Whether working through a 1031 Exchange with Equity Advantage, acquiring real estate with an IRA through IRA Advantage or listing investment property through our Post 1031 property listing site, we are here to help Investors get where they want to be. Call them today! 503-635-1031.
Other FAQs About 1031 Exchanges Asked On Reddit:
How much tax could I owe if I don’t complete a 1031 Exchange?
On a typical long term investment property, investors may face 20% federal capital gains tax on appreciation, 25% depreciation recapture, state income tax, and potentially 3.8% net investment income tax. Once everything is calculated, it is common to see roughly one third of the gain lost to taxes. Reviewing a broker’s net sheet with your CPA can help determine your projected liability before deciding whether to complete a 1031 Exchange.
What happens to depreciation in a 1031 Exchange?
Depreciation must be accounted for whether you claimed it or not. When you sell, your gain is calculated as the adjusted sales price minus your basis, and your basis equals what you paid plus capital improvements minus depreciation. In a 1031 Exchange, both the gain and the adjusted basis carry forward into the replacement property, which means future tax consequences are affected by today’s decisions.
Do I need to hold a replacement property before converting it into a primary residence?
If you intend to convert a replacement property into a primary residence, you may need to hold it as an investment property first. During that holding period, you could incur rental expenses elsewhere, and those costs should be factored into your overall opportunity cost. Evaluating these practical considerations alongside your projected tax liability helps determine whether a 1031 Exchange aligns with your long term goals.
