A Basis Swap is a type of transaction that can be used in a 1031 exchange, which is a tax-deferred exchange of like-kind properties that allows real estate investors to defer paying capital gains taxes on the sale of a property.
In a Basis Swap, the investor exchanges a property with a low-cost basis for a property with a higher-cost basis. This can be advantageous because the cost basis of a property determines the amount of capital gains taxes owed when the property is sold. By exchanging a low-cost basis property for a high-cost basis property, the investor can reduce their potential tax liability when they eventually sell the property.
It’s important to note that Basis Swaps are just one of many strategies that can be used in a 1031 exchange, and the specific tax implications can vary depending on the individual circumstances of the exchange. It’s always recommended to consult with a tax professional or financial advisor before making any decisions related to a 1031 exchange.