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.
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Laura has spent more than two decades in the small business world as a tax
strategist and fractional CFO, helping owners across the United States pay
less tax and build lasting wealth. Her practice spans advanced tax
planning, entity structuring, accounting, and CFO-level financial
strategy, and she has represented more than 3,000 clients in federal and
state tax audits. She also teaches financial literacy to young people, on
the conviction that understanding money early changes what someone
believes is possible.
