Case Study: Offsetting Passive Income

At Breakwater Exchange, we help investors reduce tax exposure while preserving wealth. In this case, our team resolved a common 1031 exchange challenge with precision and care.

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Avoiding Costly Mistakes With Smart Exchange Planning

As an executive at a Fortune 500 company, our client has a compensation package that is primarily compromised of company stock options As a result, her investment portfolio was quite robust, but heavily concentrated in this singular stock. If the performance of her company were to ever falter, her entire investment portfolio could be negatively impact.

Strategic Exchange Structuring With Breakwater Exchange

Breakwater Exchange suggested she sell off some off this position through the year since it was performing well, then reinvest the proceeds into something more diversified
like ETFs. The only issue was the capital gains hit she would incur from selling off the stock, so we advised that we utilize bonus depreciation to offset that gain.

The Outcome: Tax-Efficient Results Backed by Expertise

The client was able to execute the strategy, then used a portion of her proceeds to invest in a bonus depreciation fund . Instead of paying taxes, she was able to generate enough depreciation to offset the entire capital gain she realized. The client is now much
more diversified and confident in her investment portfolio moving further due to the concentration risk being removed.

Furthermore, she gained exposure to more real estate which was something her portfolio was lacking entirely with the exception of her
primary residence

Take Control of 1031 Solutions By Partnering With Breakwater Exchange

From tailored documentation to timing-specific strategy, Breakwater Exchange simplifies complex exchanges.

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FAQs About Our 1031 Exchange Solutions

What happens if I don’t reinvest all my sale proceeds in a 1031 exchange?

Breakwater Exchange helps you strategically handle excess proceeds, or “boot,” so you don’t face unnecessary taxes. Our documentation and timing process ensures clarity and compliance.

Can Breakwater Exchange help if I’m reducing my mortgage amount in an exchange?

Yes. We evaluate debt replacement on every transaction and offer solutions, like offsetting cash or leveraging Zero strategies, to help you avoid mortgage boot tax exposure.

Is it better to take the boot early or after the exchange?

With Breakwater Exchange, boot is best handled upfront. We’ll work with your escrow team to release funds before the exchange begins, reducing complications and improving outcomes.

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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.