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 A 1031 Exchange is possibly the most powerful tool available to property owners seeking to leverage their investments and keep their equity intact. Exchanging gives investors the ability to move with relative ease from investment to investment and even to move your investments to an area which provides a higher return. While 1031 property exchanges are often considered to be primarily real estate related, you can, in fact, move your real estate investment to heavy equipment, or your aircraft to artwork so long as the proper procedures are followed and still keep your equity intact.
HOW DOES A 1031 EXCHANGE HELP INVESTORS?
So long as proper procedures are followed, the entire proceeds from a 1031 exchange can be reinvested in the 1031 exchange property without paying any capital gains tax on the sale of the first property. This enables you to invest in a more valuable piece of property since you have the entire proceeds of the sale available to invest in the new property. In effect, you are receiving an interest free loan from the government in the amount of the taxes you did not have to pay and there is no fixed repayment period!
WHAT ARE THE MAJOR ADVANTAGES OF A 1031 INVESTMENT?
While the deferment of capital gains tax for an indefinite period is an obvious advantage there are many other investment benefits accruing to a 1031 exchange:
- Estate preservation since you can do exchange after exchange to create a pyramiding effect. This tax liability is forgiven upon the death of the investor as the heirs get a stepped up basis on the inherited property.
- Increased buying power due to greater cash flow.The 1031 Exchanger will have more buying power because the federal income taxes are deferred, giving you greater leverage than would have if you had paid the tax. The additional equity investment will help you to get financing more easily.
- Increased selling power because of the deferred capital gains, since you will not have to inflate the sales price to try to cover some or all of the capital gains that would normally be due upon the sale of your investment property.
- Exchange for property with an increased income (more rental units, higher rental income per unit, lower operating expenses, easier to rent location, etc.)
- The need or desire to relocate a business or investment property
- Exchange for property that requires less management. By using a 1031 exchange you have the opportunity to consolidate several hard-to-manage properties into one easy-to-manage property, or diversify several small properties into one large property. It also provides an excellent opportunity to relocate or expand a current business or investment.
- Exchange for property that is easier to finance
All of the above culminates into one significant power: the ability to create pyramiding wealth accumulation in real property ownership.
To contact a net-lease specialist either fill out our brief Inquiry Form or call us Toll-free 866-638-1031.
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