Economic Financial Advantages Of Doing A 1031 Exchange
A 1031 exchange is a financially advantageous transaction. When you intend to sell one property and purchase another, to obtain these benefits you must execute these transaction within a specific time frame. To ensure you take the right approach, you want to be sure you work with an experienced attorney and qualified intermediary so you know exactly what needs to be done.
One of the main financial advantages to a 1031 exchange is deferring capital gains. Using the funds that would otherwise go to taxes, you will have more funds available for the purchase of the property, allowing you to consider a larger property.
You can also diversify your real estate portfolio when you use a 1031 exchange. As an investor, you can increase the number of properties that you have, the various types, and even expand into other markets, which can include other states. This provides you with a significant amount of flexibility.
If you have a property that has little or no cash flow, you can also use the exchange process to sell it and purchase a property that can increase your cash flow. This is ideal if you have raw land and want to “exchange” it for a residential or commercial rental.
Another financial advantage is the creation of depreciation deduction on the purchased real estate. Raw land cannot be depreciated, but property improvements can.
Using a 1031 exchange can be coupled with estate planning. With planning, improvements could be built on land owned by a related party (child for instance) with the land and improvements being leased back to the exchanging parent. At the end of the lease term, the entire property belongs to the related party.
Regardless of what your goals are, you will want to explore a 1031 exchange if you plan to sell some of your real estate investment portfolio. The premise is simple. You exchange one property for another, thereby deferring any taxes that would otherwise be due on the sale of a piece of property. This is simply because you are using the proceeds of sale of one property to buy another.
Whether you are looking for cash flow, management relief, estate planning, or any other purpose, you can use a 1031 exchange to assist you and obtain financial benefits. To learn more about this process, contact us today. We provide consultations to discuss the process and answer questions that you may have.