Unveiling the 1031 Exchange Potential for Gold!

Unveiling the 1031 Exchange Potential for Gold!

Investors often aim to use a 1031 exchange as a strategy to postpone the payment of capital gains taxes when selling property. This approach can potentially boost the funds available for reinvestment, thereby enhancing the investor's ability to leverage their investment power. By engaging in sequential exchanges, this effect can be compounded, enabling the potential for portfolio growth. Many investors find this to be a logical approach.

This rationale has led some taxpayers in the past to push the boundaries of what types of property they could exchange, including collectibles, intellectual property, and precious metals. While gains from the sale of stocks and securities have never qualified for such exchanges, there have been cases where other types of property were eligible. Prior to the passage and implementation of the Tax Cuts and Jobs Act (TCJA), coins, artwork, and even antiques were sometimes approved for exchanges.

Nevertheless, even before the IRS tightened its criteria, certain restrictions were already in place. For instance, previous rulings by the IRS rejected attempts to exchange gold for silver, deeming them as not meeting the requirement of being "like-kind." Additionally, the exchange of gold coins for gold bullion was also disallowed.

TCJA Exclusions

Closeup of the Tax Cuts and Jobs Act documents highlighting the exclusions relevant to 1031 exchange and the associated tax benefits in property and investment planning

Following the enactment of the Tax Cuts and Jobs Act (TCJA), there were significant changes to the eligibility of assets for like-kind exchanges. Under the TCJA, the scope of like-kind exchanges was narrowed down to only include real estate. This exclusion meant that assets other than real estate, such as collectibles, intellectual property, and valuable metals, were no longer eligible for tax-deferred exchanges.

In response to the TCJA, the Internal Revenue Service (IRS) took steps to provide further clarification on the statutory limitations and parameters of like-kind exchanges. One such clarification came in the form of Regulation REG-117589-18, issued by the IRS. This regulation aimed to define and specify the types of properties that qualified as real property for the purpose of like-kind exchanges.

According to REG-117589-18, real property, for the purposes of a like-kind exchange, is defined as encompassing various elements. These elements include land, improvements made to land, unsevered crops, natural products of the land, and even the water and air space that are directly adjacent to the land. It is important to note that this definition extends to include permanent structures such as roads and bridges, which are considered integral components of the real property.

By providing this detailed definition of real property, the IRS aimed to establish clear guidelines for taxpayers and investors engaging in like-kind exchanges. These guidelines outlined the specific types of assets that would still qualify for tax-deferred treatment under the revised rules set forth by the TCJA.

How do 1031’s work?

Woman meeting with a financial advisor in office discussing the workings of a 1031 exchange and the tax benefits it can offer in property investment planning

A 1031 exchange is a valuable tool for taxpayers who own real estate and wish to optimize their investment strategy. Let's delve into how it works. Imagine you are a real estate owner with an apartment building located in one state. However, you have a desire to shift your focus to another geographical area or change the composition of your portfolio by eliminating residential assets and acquiring industrial properties instead.

In this scenario, if you decide to sell the apartment building, you will be subject to capital gains taxes. The capital gains tax is calculated based on the difference between your initial purchase price (referred to as the basis) and the current market value at which you can sell the property.

To illustrate, let's assume you purchased the apartment building for $500,000, and its current value is estimated at $1,000,000. This signifies an increase of $500,000 in value (while considering any adjustments to the basis). Depending on your income level, you could potentially face a tax bill of up to $100,000 (assuming you have owned the property for more than a year and qualify for long-term capital gains tax rates).

Now, here's where the 1031 exchange comes into play. By executing a 1031 exchange, you have the opportunity to defer the payment of capital gains taxes and reinvest the entire $500,000 profit into a new property. Instead of paying the taxes immediately, you can utilize the funds to acquire a replacement property that aligns with your investment goals. This deferral allows you to leverage the full amount of your profit for reinvestment, thereby enhancing your investment power and potential returns.

By taking advantage of a 1031 exchange, you can defer the tax liability and maintain a larger pool of funds to invest in new properties. This strategy enables you to strategically reposition your real estate portfolio and pursue investment opportunities that align with your long-term objectives.

Repeating the Exchange Transaction

Engaging in a 1031 exchange does not completely eliminate the obligation to pay capital gains tax. While the exchange allows you to defer the tax payment by reinvesting the proceeds into a replacement property, if you eventually sell that replacement property, the capital gains tax will come into play. At this point, you will not only owe tax on the gain from the sale of the replacement property but also the deferred tax from the original asset.

However, there is an intriguing aspect to consider: the potential for successive exchanges and the opportunity to continuously defer the tax liability. By repeating the 1031 exchange process with subsequent property sales, you can continually defer the capital gains tax and reinvest the funds into new replacement properties. This strategy can potentially enhance your investment power and facilitate portfolio growth over time.

Another noteworthy aspect to explore is the possibility of completely avoiding capital gains tax by holding onto the investment until you pass away and bequeathing it to your heir(s). In this scenario, when the property is inherited, the heir(s) will receive it at a stepped-up value, which is determined by its fair market value at the time of your death. Consequently, the heir(s) will not be liable for any tax on the gains that accrued prior to your passing.

This stepped-up basis allows for a reset in the tax calculation, erasing the previously deferred gains. As a result, your heir(s) can potentially inherit the property without incurring any tax liability on the accumulated gains up to that point. This can be a substantial benefit for striving to preserve wealth and passing it on to the next generation.

By leveraging the strategy of successive 1031 exchanges and potentially utilizing the stepped-up basis upon inheritance, taxpayers can effectively manage their tax obligations and attempt to maximize the benefits of deferring capital gains tax. It is essential to consult with tax professionals and estate planning experts to ensure proper execution and compliance with applicable tax laws and regulations.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication. 

1031 Risk Disclosure: 

Why the Conventional 60/40 Portfolio May Be Largely Out-of-Date

The traditional 60/40 portfolio, which has been the mainstay investment strategy for decades, may no longer be effective due to the probable underperformance of both its component parts for years to come. The 60/40 portfolio involves investing 60% of your money in stocks and 40% in bonds, and it is designed to attempt to capture capital appreciation through equities while mitigating risk through asset diversification into fixed income.

However, experts are now saying that this approach may no longer be effective, as both stocks and bonds may not make as much money in the future as they have in the past. This view has only been amplified by recent economic events, including high inflation and the possibility of stagflation, which are causing financial experts to reconsider their approach to investing.

In fact, these events have prompted some experts to predict a lost decade for the 60/40 portfolio, meaning that this investment strategy may not yield significant returns for investors over the next ten years.

In response to these concerns, financial advisors are being encouraged to take a different approach to managing their clients' capital. This may involve diversifying investments across different asset classes, such as real estate or commodities, in addition to stocks and bonds. Some advisors are also recommending more active management of investment portfolios, with a focus on striving to identify opportunities for growth and mitigate risk in a dynamic market environment.


Overall, the traditional 60/40 portfolio may no longer be the best way to invest money, and that financial experts need to be more creative and dynamic in their approach to investing in order to help clients achieve their financial goals.

Traditional investment strategies, such as the 60/40 portfolio, are becoming increasingly obsolete in the current economic environment. Financial experts are rethinking their approach to investing, and it is becoming clear that the mix of equities and bonds that has been the mainstay investment strategy for decades is no longer as effective as it used to be. In fact, there is a rising risk of stagflation in the US and Europe, which is causing some experts to predict a lost decade for the 60/40 portfolio mix of stocks and bonds.

One of the problems with the 60/40 portfolio is that, on the equity side, geopolitical conflicts are slowing economic growth, which in turn is leading to slower earnings growth. Additionally, lower valuations as a result of higher interest rates further complicate the issue. This means that the equity portion of the portfolio is not performing as well as it has in the past.

The bond portion of the portfolio is also experiencing problems. With higher interest rates, bond prices are decreasing, and the pace of inflation means that real returns for bondholders will be lower, and in some cases negative. This means that the fixed-income part of the 60/40 portfolio is also not performing as well as it has in the past.

As a result, the traditional 60/40 portfolio is not well-equipped to perform in the current economic environment. In fact, it is down more than 10% this year, on pace for its worst performance since the 2008 financial crisis.

To address this problem, financial experts are recommending more dynamic and diverse investment strategies. This may include investing in alternative asset classes, such as real estate or commodities, or using active management techniques to identify opportunities for growth and manage risk in a more dynamic market environment. Overall, the message of the article is that the traditional 60/40 portfolio is no longer effective, and that investors and financial advisors need to be more creative and proactive in their approach to investing.

Rising Possibility of a Lost Decade for the 60/40 Portfolio

Traditional investment strategies like the 60/40 portfolio may be becoming increasingly obsolete, especially with the current economic environment. Financial experts are rethinking their approach, and it's becoming evident that the traditional mix of equities and bonds that has been the mainstay investment strategy for decades no longer performs as well as it used to. According to Goldman Sachs’ portfolio strategist Christian Mueller-Glissmann, the rising risk of stagflation in the US and Europe is raising the possibility of a lost decade for the 60/40 portfolio mix of stocks and bonds.

The Problem with the 60/40 Portfolio

There are two problems with the 60/40 portfolio. First, on the equity side of the equation, geopolitical conflicts are slowing economic growth, which in turn points to slower earnings growth. Additionally, lower valuations as a consequence of higher interest rates further complicate the issue.

Second, bondholders are also experiencing problems, with lower bond prices as a result of higher rates, while the pace of inflation means that real returns for bondholders will be lower, and in many cases negative. Therefore, the traditional 60/40 portfolio is ill-equipped to perform and is down more than 10% this year, on pace for the worst performance since the 2008 financial crisis.

The Endowment Model - A Step Ahead

The endowment fund of Yale University is a prime example of how traditional stocks and bonds are no longer adequate to produce material growth with manageable risk. This fund currently has only 5% of its portfolio allocated to stocks and 6% in mainstream bonds of any kind, while the other 89% is allocated to other alternative sectors and asset classes.

Although a single portfolio's allocation cannot be used to make broad-based predictions, the fact that this is the lowest allocation to stocks and bonds in the fund’s history is significant.

Harvard's New-Age "Alternative 60/40 Portfolio"

Harvard University's endowment serves as another example of the growing trend of investing in alternative assets. As of June 30, Harvard's endowment had an allocation of 36.4% to hedge funds, 23% to private equity, 18.9% to equities, 7.1% to real estate, and only 4.9% to bonds. As per the Harvard Management Co. President and CEO Nirmal P. "Narv" Narvekar, the university's $41.9 billion endowment returned 7.3% in "another year in which asset allocation (or risk level) played a major role in returns."


Traditional investment strategies are becoming increasingly obsolete, and investing in alternative assets is becoming more popular. With the traditional 60/40 portfolio's lackluster performance, investors should consider diversifying their portfolios and exploring alternative investment options. With the help of a financial advisor, investors can explore different asset classes to find a portfolio that aligns with their financial goals and risk tolerance.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Any information provided is for informational purposes only.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

Investment in Industrial Real Estate: 5 Reasons to Consider it

Industrial real estate has become one of the most profitable and popular investment types in the United States. Industrial real estate opportunities provide a wide range of excellent options that might be ideal for institutional portfolios, private investors, or family offices with varying risk appetites and tolerances. Industrial real estate provides an extensive variety of property types, such as warehouse, distribution, manufacturing, and flex space. 

Although industrial assets might not have the aesthetics and curb appeal of other types of real estate, there has been a surge in demand for industrial investments over the last few years as the sector gradually transforms in order to accommodate many high-growth industries.

What is Industrial Real Estate?

Industrial properties include the following: 

It is worth noting that the types of industrial properties in different regions or areas often vary based on the local infrastructure. For example, some areas are pretty heavy on manufacturing, and some towns and cities may have limited options for industrial investments. 

There is no doubt that automation and technology have played a massive role in industrial property development over the last few years. Also, it has become a primary expense for industrial landlords whose tenants have resorted to automation and robotics for their business activities. This innovation has made industrial real estate a very lucrative and exciting investment category.

Many experts consider industrial real estate one of the strongest and most attractive asset classes as it’s usually relatively inexpensive to own and operate. It also typically provides a more stable cash flow than other real estate sectors, like retail and office.


Here are five reasons to consider investing in industrial real estate:

1.    High Demand

Industrial properties usually stay vacant for considerably less time than other kinds of commercial real estate, such as office space. CBRE reveals that leasing demand for industrial property, such as distribution centers, has been mainly driven by transportation and warehousing, retail, and wholesale (including e-commerce), as well as processing and manufacturing. Also, as industrial real estate plays a huge part in infrastructure, it is usually in high demand in specific areas. 

And demand for industrial properties stays high as almost every product we encounter or use has likely passed through an industrial property in one way or another. Hence, these properties are considered to be part of the logistical supply chain and thus indispensable. Due to the current popularity of e-commerce and the resultant need for larger-scale distribution and fulfillment centers, this industry has the potential to flourish in the future, resulting in the possibility of continued high-demand.

2.    Less Maintenance

Owning a commercial property comes with its fair share of expenses and overhead, such as repairs, upgrades, and renovations. These expenses will likely be necessary throughout the entire duration of your ownership and tend to become both time-consuming and costly.

However, overall, the maintenance or upgrades required are usually much less than in most other sectors. For example, many industrial properties are usually big, open areas with high, exposed ceilings and poured concrete floors, and so there is no need for items like flooring, high-end fixtures, and sound-proofing.

3.    Reasonable Vacancy Costs and Lower Vacancy Rates

One of the least attractive aspects of real estate investment is facilitating your property for the next tenant once the previous tenant moves out. This means that in the case of residential or retail tenants, landlords will likely have to pay the remaining heating bills, insurance taxes, and property taxes. And if the residential tenants have left the property in bad shape, revamping the property in order to attract new tenants can be expensive. However, with industrial real estate properties, such as distribution centers, these costs can be much lower. 

Although office vacancies have surged as employers and companies prepare for a post-COVID-19 future of distributed work, the industrial real estate market is hotter than ever. This is due to a pandemic-fueled surge in e-commerce as well as increased consumer demand to receive more products at Amazon-like speeds. See Marcus and Millichap.

4.    Can Be Easier to Liquidate

Due to currently high overall demand for industrial properties, these properties generally remain on the market for shorter periods of time than other real estate asset classes.

5.    Higher Potential Yields

With typically fewer market fluctuations, longer leases, and less turnover, investors are likely to potentially benefit from a greater ROI. Although all investments have associated risks, industrial real estate is often considered more recession-resilient than other types of properties, and these properties tend to hold their value and sometimes possibly appreciate over time. As industrial properties can have higher rental rates, this can also lead to higher yields for investors.

Contact Perch Wealth today to discuss opportunities about investing in industrial properties.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing.

Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure:

•         There is no guarantee that any strategy will be successful or achieve investment objectives;

•         Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;

•         Change of tax status – The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities;

•         Potential for foreclosure – All financed real estate investments have potential for foreclosure;

•         Illiquidity – Because 1031 exchanges are commonly offered through private placement offerings and are illiquid securities. There is no secondary market for these investments.

•         Reduction or Elimination of Monthly Cash Flow Distributions – Like any investment in real estate, if a property unexpectedly loses tenants or sustains substantial damage, there is potential for suspension of cash flow distributions;

•         Impact of fees/expenses – Costs associated with the transaction may impact investors’ returns and may outweigh the tax benefits.

How Should I Invest My Wealth in 2022?

The present market offers financial backers a plenty of speculation valuable open doors across various ventures. While having different choices can assist with further developing a singular's venture methodology, they can likewise cause vulnerability, bringing up issues about which speculation suits the individual's monetary targets. So you may be wondering where do I invest my wealth in the current economy.

To help give guidance on which investment is ideal for you, we will frame the fundamental components of the present most wanted speculations and go over the upsides and downsides of every one.

For this article, we will isolate the data into two segments. To start with, we will take a gander at more conventional speculation choices, like putting resources into stocks or bonds. Then, we will audit elective speculations. Albeit less known among the present financial backers, elective choices offer potential advantages that numerous customary speculations need.

Customary Investment Options

By and large, financial backers have depended upon a 60/40 portfolio piece to assist them with accomplishing their long-term monetary dreams, for example, fabricating a savings for retirement, reimbursing a home loan early, or paying instructive costs for their youngsters. As indicated by this model, a financial backer's portfolio ought to comprise of about 60% stocks and 40 percent bonds. This model generally would in general convey financial backers stable development and pay to assist them with meeting their monetary objectives.

Stocks, or values, are protections that address partial possession in an enterprise. Financial backers purchase stocks and depend upon the organization's development to expand their abundance after some time. Also, stocks may offer financial backers profits - or installments to investors - for recurring, automated revenue. Then again, bonds are obligation protections presented by a company or government substance hoping to raise capital. Not at all like stocks, bonds don't give financial backers proprietorship freedoms, yet rather they address a credit.

The largest contrast among stocks and securities is the manner by which they produce benefit: stocks should appreciate in esteem and be sold later on the financial exchange, while most bonds pay fixed interest after some time.

While stocks offer financial backers the potential for more significant yields than securities, securities are by and large considered a safer venture. Therefore, numerous financial backers go to venture reserves, like common assets, trade exchanged reserves, or shut end assets, to broaden their portfolios while keeping a 60/40 arrangement. These venture subsidizes arrange capital from various financial backers, which is then, at that point, put into an arrangement of stocks and bonds. Venture subsidizes offer financial backers the possibility to moderate risk through a more adjusted portfolio.

A Change in the Portfolio Model

Because of progressing unpredictability in the stock and security market, rising costs for wares, and high valuations, the customary 60/40 portfolio model is done serving financial backers in a similar way it once did. Therefore, numerous monetary specialists are presently suggesting that financial backers broaden their portfolios with 40% elective ventures to help possibly advance their monetary position.


Elective Investments

While various kinds of elective ventures exist, we will zero in on elective land speculations because of the advantages they might perhaps offer financial backers in the present market.

Why Invest in land?

Land has for quite some time been one of the most sought-after open doors for financial backers. As a restricted ware, land has generally managed the cost of financial backers the potential for long haul security, fantastic returns, recurring, automated revenue, charge benefits, and a fence against expansion. Notwithstanding, land speculations additionally accompany specific drawbacks. Beginning in land effective money management ordinarily requires a broad measure of capital and solid financials for the individuals who are utilizing obligation.

Besides, land by and large requires dynamic support - financial backers are expected to deal with their resources for guarantee ideal execution. In this manner, elective interests in land have begun filling in prominence among the venture local area. While they can frequently offer comparable benefits to land money management, they convey a uninvolved open door, meaning they have zero administration obligation. The following are a couple choices for financial backers looking for elective land speculations.

Real Estate Investment Trusts

A real estate investment trust (REIT) is an organization that possesses and normally works pay creating land or related resources. REITs consolidate all resource types, including multi-family, retail, senior living, self-capacity, cordiality, understudy lodging, office, and modern industrial properties, to give some examples. Dissimilar to other land ventures, REITs by and large buy or foster land for a drawn out hold.

Financial backers depend on a REIT's comprehension expert might interpret the housing business sector to broaden and balance out their portfolios. Numerous REITs are public, implying that all financial backers, including unaccredited financial backers with restricted capital, can put resources into them.

While public REITs convey many benefits related with customary land effective financial planning - like pay potential, broadening, and conceivable expansion security - they additionally accompany some particular inconveniences. For instance, REITs frequently experience slow development. Since REITs should pay out at least 90% of their benefits in profits, new acquisitions and improvements are restricted. To decide the strength of a venture, potential financial backers ought to lead a reasonable level of investment - with the help of a specialist on the REIT before buying shares.

Delaware Statutory Trusts

A Delaware Statutory Trust (DST) is a lawfully perceived land speculation trust where financial backers buy a possession interest, or partial proprietorship, in a land resource or land portfolio.

DSTs are usually depended upon by 1031 trade purchasers since they qualify as a like-kind property per the Internal Revenue Service (IRS).

As well as giving financial backers recurring, automated revenue potential through an administration free venture, DSTs empower financial backers to put resources into institutional quality resources for which they wouldn't in any case haveaccess. These resources might have the option to convey more significant yields and longer-term strength.

Moreover, the obligation designs of DSTs are appealing to numerous financial backers. Individuals who put resources into DSTs have restricted obligation equivalent to their ventures; nonetheless, they can exploit the frequently alluring funding gotten by the support organizations. Sadly, just licensed financial backers can put resources into DSTs.

Opportunity Zones

Opportunity zones (OZs), characterized by the IRS, are "a financial advancement device that permits individuals to put resources into upset regions in the United States. This incentive’s intention is to prod financial development and work creation in low-pay networks while giving tax breaks to financial backers." OZs were presented. under the Tax Cuts and Jobs Act of 2017, and financial backers keen on putting resources into an OZ should do as such through a qualified opportunity fund (QOF).

QOFs can be an eminent choice for financial backers because of their tax breaks, which rely upon the period of time a financial backer holds a QOF venture. We have recently made sense of these advantages, which we allude to as OZ triple-layer charge motivators. Here is a depiction of the tax cuts a QOF offers a financial backer:

● Deferral: Those who rollover their capital increases into a QOF can concede capital earn respect from the first speculation until December 31, 2026.

● Decrease: how much capital increase perceived from the first speculation is diminished by 10

percent in the wake of accomplishing a five-year holding period, as long as that five-year holding period is accomplished by December 31, 2026.

● Avoidance: Long-term financial backers are qualified to pay no expense on the enthusiasm for their QOF venture upon attitude of that speculation, no matter what the benefit size, assuming the resources held in that QOF are held for no less than 10 years.

While opportunity zones are viewed as an unsafe speculation, provided their motivation, they might possibly convey financial backers better yields when contrasted with other elective land venture choices.


Interval Funds

An extra elective venture choice worth focusing on are interval funds. These assets are not restricted to land yet rather can be utilized to put resources into numerous protections, including land. Comparable to recently referenced reserves, these arrange investor money to put resources into various protections. Be that as it may, they offer a lower level of liquidity. Rather than having the option to exchange shares everyday, financial backers are normally restricted to selling their portions at expressed spans (i.e., quarterly, semi-every year, or yearly). The advantage of stretch assets is the adaptability they offer the assets - they permit the asset to execute longer-term procedures, making the potential for a more steady venture.

Accordingly, interval funds will generally convey better yields and a more broadened an open door. Presently, where do I put away my cash today? While the above data offers a depiction into the upsides and downsides of different speculation choices, you ought to think about extra perspectives. As opposed to promptly attempting to distinguish which choice is ideal for your purposes, the critical focal point here is to comprehend that the present market offers a variety of venture choices that were already obscure to quite a large number. Financial backers can broaden past stocks and bonds, which might potentially give them more significant yields while trying to relieve risk. To foster a venture portfolio that meets your monetary objectives, we encourage you to talk with one of our monetary experts.

General Disclosure

Not an offer to buy, nor a solicitation to sell securities. Information herein is provided for information purposes only and should not be relied upon to make an investment decision. All investing involves risk of loss of some, or all principal invested. Past performance is not indicative of future results. Speak to your finance and/or tax professional prior to investing. Securities offered through Emerson Equity LLC Member: FINRA/SIPC. Only available in states where Emerson Equity LLC is registered. Emerson Equity LLC is not affiliated with any other entities identified in this communication.

1031 Risk Disclosure: