Did you know the IRS provides investors with essentially a long-term and interest-free loan and it is one of the most under-utilized tax benefits available?
(Yes, I actually said “IRS” and “benefit” in the same sentence )
A US tax law written way back in 1921, known today as the 1031 Tax-Deferred Exchange, is designed to benefit taxpayers who own and hold investment property. The 1031 Exchange permits owners to reinvest ALL the proceeds of a sale of an investment asset into the purchase of another similar (“like-kind”) property tax-free. According to the IRS, if an owner is reinvesting all the gains into a replacement property (essentially swapping one business asset for another and not cashing out), he or she shouldn’t be burdened by paying capital gains tax on the sale.
The compounding effects of the 1031 Exchange have very real wealth building benefits.
With each sale under the 1031 Exchange program, you will have more dollars to invest in the next replacement property, the Exchanges can continue indefinitely and, perhaps most importantly, each new investment acquisition can improve upon the previous one.
Here are some examples (excerpted from this article):
– You can create cash flow by exchanging land for income-producing property
– You can move your investment property from its current location to one you consider more desirable
– You can consolidate multiple properties into one
– You can diversify risk by selling one and buying multiple properties
– You can get rid of management hassles by exchanging into a triple net lease (Net-Net-Net) property
– You can exchange your free-and-clear property to maximize your return with positive leverage
– You can switch investment property types among office, retail, warehouse, multi-family, etc.
– You can preserve the value of your estate and maximize your real estate holdings as part of your retirement planning.
The rules governing the 1031 Exchange program are complex so I highly recommend that you work with experts in this field. I would be happy to put you in touch with qualified advisors if you are interested in learning more!
Posted on 10/27/2016 at 11:30 AM
