1031 Exchange Case Study: Here’s how a high-income business owner used a 1031 exchange to turn one underperforming property into four diversified, passive income streams—while deferring over $1.1M in taxable gains and saving roughly $358K in immediate taxes.
Investor Profile
High-income earner, business owner, moderately experienced investor
Goal: passive income & diversification
Taxable income: ~$300K
First 1031 exchange
Before the Exchange
Property: 40-unit apartment building in Missouri (owned since 2006)
Value: ~$3.65M
Loan balance: ~$1.36M
Annual cash flow: Positive, but low performance relative to effort
Equity tied up: ~$2.2M
The problem: Too much equity concentrated in one asset and one location, with outsized management effort for modest returns.
The 1031 Exchange
Sale price: ~$3.65M
Selling costs: ~$83K
Loan payoff: ~$1.36M
Net proceeds: ~$2M cash to reinvest
New investments: Four syndicated multifamily assets in different states
Total FMV acquired: ~$3.7M (cash ~$2M + loans ~$1.7M)
Timing: All closings completed within the 1031 exchange window
Recapture @ ~24% Federal + ~9.3% CA: ~$111K saved now
Capital gains @ ~15–20% Federal + ~9.3% CA: ~$246K saved now
Total 2024 tax avoided: ~$358K (all gain deferred into replacement properties)
All gains deferred into the new properties — no tax paid in 2024.
After the Exchange
Diversification: From one Missouri property → four properties across multiple states
Cash flow: Increased via passive syndication distributions
Management: No active landlord duties—fully managed investments
Future planning: Continue 1031 exchanges over time and potentially pass assets to heirs with a step-up in basis (eliminating the deferred gain entirely).
Bottom Line
This investor transformed one underperforming, high-effort property into four diversified, income-producing assets—and deferred more than $1.1M in taxable gains. That’s the strategic advantage of a well-planned 1031 exchange.
Ready to Explore a 1031 for Your Portfolio?
Let’s look at your current property, your timeline, and whether a 1031 into passive multifamily makes sense for you.
