A 1031 exchange reinvests in replacement property.  A tax payer does not recognize the capitol gain on their tax return and avoids the 3.8% Net Investment Income (NII) Tax.

Recently the IRS distributed IRS Tax Tip 2016-28 which helps taxpayers determine if they must pay the 3.8% NII tax.


The Tax Tip fails to mention that if a taxpayer successfully does a 1031 exchange all the Capital Gain (profit  + depreciation) can be deferred and is not included in figuring the NII tax due.

Another way a 1031 exchange helps reduce tax impact.