If you own investment property in Buffalo, NY, there is a decision that comes up more often than you might expect:
“Should I sell and take the cash, or roll it into another property using a 1031 exchange?”
On the surface, it feels simple. Cash in your pocket today sounds appealing. But once you understand the tax implications of selling real estate in New York and the long term impact on your wealth, the difference can be substantial.
Let’s walk through a real example.
Scenario: You Have $100,000 in Gain
You sell an investment property in Buffalo or Western New York and walk away with:
- $100,000 in total gain
- This includes both capital gain and depreciation
Now you have two options.
Option 1: Take the Cash
If you sell your Buffalo investment property without a 1031 exchange, taxes apply immediately.
Here is a simplified breakdown:
- Depreciation recapture (up to 25%)
- Federal capital gains tax (typically 15% to 20%)
- New York State taxes
Estimated Taxes:
- Depreciation recapture: ~$25,000 × 25% = $6,250
- Remaining gain: ~$75,000 × 20% = $15,000
Total estimated tax: ~$21,250
What You Actually Keep:
- $100,000 gain
- Minus ~$21,250 in taxes
Net proceeds: ~$78,750
Option 2: 1031 Exchange (Tax Deferred Real Estate Strategy)
If you complete a properly structured 1031 exchange in Buffalo, NY:
- You defer all taxes
- Both capital gains and depreciation recapture are postponed
What You Keep:
- Full $100,000 stays invested
Net proceeds: $100,000
The Real Difference for Buffalo Real Estate Investors
At first glance, the difference is about $21,250.
But that is only the beginning.
Because in Buffalo real estate investing, your money is not sitting idle. It is working through appreciation, rental income, and leverage.
What Happens When You Reinvest?
Let’s assume:
- You reinvest into another Buffalo or Western New York investment property
- You earn a modest 8% annual return
Over 10 Years:
Option 1: Take the cash
- $78,750 grows to ~$170,000
Option 2: 1031 exchange
- $100,000 grows to ~$216,000
Difference:
~$46,000 more wealth created by deferring taxes
This is why many investors in Buffalo multifamily and rental properties choose to defer taxes and keep their capital working.
What About Depreciation Recapture?
This is where many investors get confused.
A 1031 exchange does not eliminate taxes, it defers them.
- Your original depreciation carries into the new property
- The IRS continues tracking it
You only pay taxes when:
- You sell without doing another exchange
The Strategy Experienced Buffalo Investors Use
Most experienced Buffalo real estate investors do not stop at one exchange.
Instead, they:
- Continue exchanging into larger or higher performing properties
- Move from smaller rentals into multifamily or commercial assets
- Increase cash flow and long term appreciation
In many cases, they hold properties long term.
At death:
- The property typically receives a step up in basis
- Deferred taxes, including depreciation recapture, may be eliminated
This is a powerful wealth building strategy in New York real estate.
So Which Option Is Better?
It depends on your goals.
Take the cash if:
- You need liquidity
- You are exiting the Buffalo real estate market
- You want to diversify into other investments
Consider a 1031 exchange if:
- You want to grow your real estate portfolio
- You want to preserve capital and defer taxes
- You are focused on long term wealth building in Buffalo, NY
Final Thought
The real question is not:
“How much did I make?”
The better question is:
“How much of it stays invested and working for me?”
For many investors, a 1031 exchange in Buffalo, NY can dramatically change the trajectory of their portfolio and long term wealth.
Thinking About Selling Your Buffalo Investment Property?
If you are considering selling and want to explore your options, we can help you:
- Compare taking cash vs a 1031 exchange
- Analyze your tax exposure
- Identify strong replacement properties in Buffalo and Western New York
Reach out to 716 Realty Group and we will walk through your numbers and strategy step by step.