This article will focus upon explaining the benefits of the 1031 tax exchange and why you should consider this if you hold property and want to sell in the near future.
To start off this article, there’ll be a bit of background given on a 1031 tax exchange. This used to be very vague until a publication was put out by the IRS back in 1991. A1031 tax exchange is used primarily for exchanging one property for another. This does not have to be done directly but rather can be done indirectly by using the services of a company licensed as a qualified intermediary. The requirements of being a qualified intermediary is not a subject which you need to know a great deal about a rather make sure that you use one of these companies when looking to do a 1031 tax exchange.
The benefit of using a 1031 tax exchange is that you are allowed to swap properties without having to pay capital gains on the property which you have sold. This allows you to build up your real estate wealth without having to worry about paying capital gains.
As a code example to explain the benefits of using a 1031 tax exchange, take a look at a property which you bought for $100,000 and have paid off. If you sold this property this year and had to pay capital gains, you may have to pay 15-20% of that $100,000 which would come to $15,000 or $20,000. By using a 1031 tax exchange, you could take your hundred thousand dollars and buy a property which is of like-kind and he further the payment of those capital gains. This allows you to keep more of the equity in your pocket.
Holding this article helped in explaining and spelling out the benefit of using a 1031 tax exchange. This is a very powerful method you could use to help build up your personal net worth in real estate. Reading on the Internet as well as talking with your local real estate investors clubs can show you personal examples of how people were able to take a single rental unit and trade the equity using 1031 exchanges into larger purchases down the road.
