What Are The Benefits Of The 1031 Exchange?

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1031 Exchange versatility

Planning to sell your land or building for investment purposes? You should know the benefits you can get from the 1031 Exchange. 1031 Exchange which is sometimes known as the “Starker Loophole,” is a procedure that allows you to defer capital gains tax when swapping your investment estate to another like-kind property. It came from the Internal Revenue Code (IRC) provision known as “Section 1031.” With the excellent economic growth and estate appreciation that we have witnessed in the past years, many investors continue to take advantage of the said exchange rules. 1031 exchange can increase their purchasing capabilities, leverage, diversify, relief from management, and have a good cash flow.

Leveraging your 1031 Exchange

Investors can definitely take advantage of the 1031 exchange. They can leverage and have more funds for reinvestment. By postponing capital gains taxes, investors will have more money presently available for investment purposes. This increased purchasing capability from the 1031 exchange law, gives you additional leverage to purchase an asset, or various assets with remarkably greater investment benefits than if you traded the original estate, paid all the taxes associated with the transaction, and secured a new land.

Leveraging your 1031 Exchange

1031 Exchange versatility

There are versatile options. Under the 1031 exchange rules, you as an investor, may trade one asset for several others, merge multiple estates into one, and obtain any real estate within the U.S.  For instance, an investor can swap two duplexes for commercial land, or benefit from a newly developing area by trading one estate in New York for two properties in Colorado.

1031 Exchange versatility

The Cash Flow

The major advantage of real estate investing is its capacity to generate cash flow. Cash Flow is the net income from a real estate investment after paying the mortgage and operating charges. In most scenarios, cash flow only increases over time as you pay mortgages and grow your equity. Cash flow and all-inclusive earnings can both grow through a 1031 exchange.  For instance, a vacant parcel of land that generates no depreciation benefits or cash flow can be traded for commercial land that does.

The Cash Flow

Investors can also make a good cash flow through rental income, or any profits produced by a property-dependent business venture, and through appreciation. Real estate values tend to grow over time, and with a fine investment, you can turn a profit when it’s time to sell. Rents also tend to likely increase over time, which can lead to higher income.

Relief from Management

Relief from Management

As a new investor, you may wonder about when to pay your 1031 exchange capital gains tax? Perhaps not at all. Most real estate investors falsely believe that one day they will have to pay the 1031 exchange taxes, so they might as well just sell the estate. Oftentimes, this is not a good decision. The tax from the exchange rules is postponed into the future and is only acknowledged when an investor actually sells the property for money instead of doing a 1031 exchange. Real estate investors can continue to trade assets as often or for as long as they want, therefore, leading up to better investments and several years of deferring taxes.

Paying the Deferred Tax

Paying the Deferred Tax

Did you know that the postponed capital gains taxes owed to IRS gets erased when the owner is deceased? Using this game plan can be hefty as investors can utilize multiple 1031 exchanges to purchase larger assets throughout their entire life, therefore growing their money tax-free. When the owner passes, their beneficiaries will receive the property equal to the fair market value, hence removing any tax responsibilities.

Benefit For Your Family

Benefit For Your Family

Did you know that the postponed capital gains taxes owed to IRS gets erased when the owner is deceased? Using this game plan can be hefty as investors can utilize multiple 1031 exchanges to purchase larger assets throughout their entire life, therefore growing their money tax-free. When the owner passes, their beneficiaries will receive the property equal to the fair market value, hence removing any tax responsibilities.

You can hire a real estate advisor or expand your knowledge about the 1031 exchange through research. There are a lot of benefits that you can get from the said exchange rules, especially for investment purposes. Benefits that can bring you ease, convenience, and of course, a good income.

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