Why should I perform a 1031 Exchange?
Section 1031 of the IRS tax code, originally enacted in 1921, allows investors to sell business or investment real estate and use all of the net receipts to purchase replacement real estate while deferring taxes associated with the sale.
Give me one good reason!
A 1031 Exchange requires the relinquished and replacement real estate to be qualified, like-kind properties, and the transaction must be properly structured as an exchange. Real Estate must have been held for investment purposes or for productive use in the investor’s trade or business.
1031 Exchanges are well recognized as a valuable tool to help build wealth through tax savings and investments. Here are just a few of the benefits:
- Allows an owner to exchange real estate without incurring immediate tax liability (which could be up to 35-40% of the gain).
- May indefinitely postpone tax liability through the use of subsequent exchanges
- Exchanger’s heirs inherit property at current market value avoiding capital gains and recapture of depreciation taxes
- Can serve as an important estate-planning tool
- Can provide greater purchasing power by making dollars available for purchase that are not required to cover an expected immediate tax burden
- Could help to diversify your overall investment holdings