Case Study: Failed Exchange

Discover how Breakwater helped a client save a failed 1031 exchange.

Maximizing Gains and Minimizing Taxes at a Glance

Our client was in the process of performing a 1031 exchange but failed to close within the allotted 180 day timeline. He was resigned to the fact that he would have to pay capital gains tax on the $1.2M in proceeds, which equaled approximately $400k.

A Time-Sensitive Strategy With Built-In Liquidity

Instead of paying that tax to the IRS, the client invested approximately $500k into two different bonus depreciation funds for 2 different sponsors in the gas station convenience store asset class.

The Outcome: A Compliant Exchange and Smart Reentry Thanks to Breakwater Exchange

The client was able to generate enough depreciation in the current year to offset the entire capital gain. Instead of having a sunk cost due to paying the tax, he now owned shares of roughly 90+ different gas stations and attached convenience stores that were being leased by investment grade tenants across the country. These assets now generate approximately $25k a year for the investor in passive income with the opportunity of potential appreciation I the future once they are sold.

Breathe Easy With Breakwater Exchange’s Cash Saving Investing

When timing isn’t on your side, Breakwater Exchange structures compliant, creative strategies that give you breathing room. Our cash-out solutions solve for debt while unlocking liquidity, so you don’t have to compromise your next investment.

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FAQs About Our Cash Out and Zero Strategies

Can I complete my exchange before I identify a new property?

Yes. Breakwater Exchange uses IRS-compliant Zero strategies to help you complete your exchange on time, even if you’re still evaluating your next move.

What happens to my proceeds while I wait to reinvest?

Breakwater Exchange helps structure a refinance option after the Zero closes, allowing you to access your proceeds and place them into income-generating vehicles until you’re ready.

Can I still buy with cash later if I used a Zero to solve for debt?

Absolutely. With Breakwater Exchange, your debt replacement is already handled, giving you the freedom to purchase your next property without new bank debt.

Access Investment Offerings Other Brokers Can’t Provide

Breakwater Exchange’s expert guidance helps you maximize returns while minimizing tax exposure, so you can invest with clarity and confidence.

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General Disclosure
All investing involves risk of loss of some or all principal invested. Past performance is not indicative of future performance. There can be no guarantee that any investment or strategy will achieve its stated objectives. Speak to your tax and/or financial professional prior to investing.

Real Estate / 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 fnanced real estate investments have potential for foreclosure; Illiquidity –These assets 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 benefts. Stated tax benefts – Any stated tax benefts are not guaranteed and are subject to changes in the tax code. Speak to your tax professional prior to investing.

Opportunity Zones Disclosures
Investing in opportunity zones is speculative. Opportunity zones are newly formed entities with no operating history. There is no assurance of investment return, property appreciation, or profits. The ability to resell the fund’s underlying investment properties or businesses is not guaranteed. Investing in opportunity zone funds may involve a higher level of risk than investing in other established real estate offerings. Long-term investment. Opportunity zone funds have illiquid underlying investments that may not be easy to sell and the return of capital and realization of gains, if any, from an investment will generally occur only upon the partial or complete disposition or refinancing of such investments. Limited secondary market for redemption. Although secondary markets may provide a liquidity option in limited circumstances, the amount you will receive typically is discounted to current valuations. Difficult valuation assessment. The portfolio holdings in opportunity zone funds may be difficult to value because financial markets or exchanges do not usually quote or trade the holdings. As such, market prices for most of a fund’s holdings will not be readily available. Capital call default consequences. Meeting capital calls to provide managers with the pledged capital is a contractual obligation of each investor. Failure to meet this requirement in a timely manner could elicit significant adverse consequences, including, without limitation, the forfeiture of your interest in the fund. Leverage. Opportunity zone funds may use leverage in connection with certain investments or participate in investments with highly leveraged capital structures. Leverage involves a high degree of financial risk and may increase the exposure of such investments to factors such as rising interest rates, downturns in the economy or deterioration in the condition of the assets underlying such investments. Unregistered investment. As with other unregistered investments, the regulatory protections of the Investment Company Act of 1940 are not available with unregistered securities. Regulation. It is possible, due to tax, regulatory, or investment decisions, that a fund, or its investors, are unable realize any tax benefits. You should evaluate the merits of the underlying investment and not solely invest in an opportunity zone fund for any potential tax advantage.