Section 1031 of the IRC can be considered a blessing to all those who plan to sell their property and reinvest the proceeds in like-kind property. 1031 Exchange Place believes that an exchange is a powerful tax strategy for real estate investors and that opting for a 1031 exchange in a real estate transaction has a lot of benefits that most people don’t usually know. Here’s a look at some of them.
1. Defer on the taxes of capital gains
This is the primary goal of this provision – to defer capital gain taxes. By doing so, the IRS is encouraging sellers to reinvest their money into something else that would still bring them profit. If you analyze it, it’s a win-win situation.
2. Expand your portfolio
Exchanging your current residential apartment building with strip mall is a good example of expanding your experience and knowledge of different types of business segments. Since you’ll have to build and establish a name in each one, you’ll have enough time to learn the ins and outs of different industries, filling up your portfolio with significant experience.
3. Use your money for a bigger investment
Selling your property and just keeping the money in a bank account sounds like a boring transaction. An exchange can help you make bigger investments and receive bigger returns. For example, you can exchange raw land for different types of properties that can produce income such as a building that has units you can rent out.
4. Reduce management responsibilities
If you own several real estate properties, managing them can get pretty hectic. For real estate owners who want to reduce their management responsibilities, they can always replace their different properties with one that requires less attention from the owner.
Choosing to do a 1031 can sound complicated at first, but with the help of the right people, you can reap these benefits and make it all work for the betterment of your finances.