Efficiency of 1031 exchange for personal financial portfolios

This paper shows how to calculate the appropriate overweight portion of real estate in an investor’s portfolio when evaluating a 1031 exchange. Where the risk-adjusted future gains on tax-deferred dollars are greater than the risk-adjusted gains on after-tax dollars, a 1031 is more efficient. Using historical rates of return across different asset classes, deferring capital gains taxes is frequently the preferred strategy but will depend on goals, risk tolerance and related portfolio considerations. Delaware Statutory Trusts (DSTs) and UPREITs are potential alternatives to direct asset exchange for a 1031 exchange.