Also known as a Like-Kind Exchange or Starker Exchange, a 1031 Exchange is an investment strategy where the investor can defer the payment of capital gains taxes on an investment property that has been sold, if another property, that is of like kind to the first property, is bought using the profits from the sale of first. If you are a real estate investor, using a 1031 exchange to purchase properties can be very profitable for you. An investment company like Turner Investment Corporation can help you ensure that the transactions go smoothly. Here are some of the most important benefits of a 1031 Exchange.
First, in most cases, selling an investment property, even if you are not the one who originally bought it, means that you have to pay for capital gains tax. Depending on the value of the property, this can be quite a significant amount of money. If you are selling your investment property for less than what you bought it for, this can mean that the purchase cost you more than you have made. In this case, a 1031 Exchange can be quite advantageous to avoid losing more money. Furthermore, if the property has considerably risen in value from when you first purchased it, a 1031 Exchange will also help you maximize your profits.
Second, if you are planning to diversify your investment, a 1031 Exchange can be a powerful strategy that you can use. You can accomplish this using several methods. For example, you can diversify into another state or an area where the property values are significantly variable. You can, for instance, do a 1031 exchange for one property in Texas with two properties in California and Colorado. Another way to do this is to purchase a different class of property. An example of this is to go from a residential property to a commercial property - so you sell a family home and replace it with a commercial building.
Finally, a 1031 Exchange can be a great idea if you are having trouble with the management of your property. For example, if you are paying to much to maintain and repair a property, you might want to replace it with another property that will not cost you as much in term of maintenance costs. There are also certain types of property that are better if you want to hire a property manager instead of doing it yourself. Learn more!
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