Benefits to Real Estate Investors Using 1031 Tax Deferred Exchanges
December 4, 2011 by admin
Filed under real estate info
Originally posted 2008-12-01 08:11:17. Republished by Blog Post Promoter
According to Internal Revenue Code Section 1031, an investor can sell a property and reinvest the proceeds in a new property. The usage of the Section 1031 allows the investor to defer capital gain taxes when selling any property ” held for investment purposes”. There are many advantages to using the 1031 tax deferred exchanges.
One benefit to using the 1031 exchange is preservation of equity. If the exchange is structured properly the investor can defer 100% of both Federal and State capital gain taxes. This equality to an interest-free, no term loan on taxes. It will, of course, be due when the property is sold for cash. As an investor you could defer your capital gain taxes indefinitely if you continue to exchange from one property to the next.
Another benefit to using the 1031 exchange is leverage. You could exchange from one property that is free and clear to one that is more valuable and creating a larger cash flow thereby providing greater depreciation benefits which in turn increase your return on your investment.
Still yet another benefit to using the 1031 exchange is diverisifcation. An investor can diverify by changing geographic location of their investment property or type of investment property.
Another benefit to using the 1031 exchange is managment relief. If you have several single family homes, you can exchange from those to an apartment complex with on site managment and maintenance.Â
The last benefit to using the 1031 exhange is estate planning. If you have inherited one large property from a family member and there are disagreement about what to do with the property. By exchanging the property, the large property can be divided in to several different for each individual to list or sell.
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