The dream of every family is to own their own house or apartment. Owning a home, or being a business owner that owns the premises where your business is based, offers many advantages. If things go wrong, like loss of income, bad health, or other emergencies, life gets very tough; you have a roof over your head. And having a home means you can do some improvements and personal touches to make it your own. The IRS offers real estate investors numerous incentives to sell one property and buy another without paying capital gains taxes. The most commonly used method is a tax-deferred exchange, more commonly referred to as the 1031 property exchange.
The 1031 Property Exchange
The term “1031” refers to Section 1031 of the Internal Revenue Code, which allows you to postpone paying taxes on your capital gains in exchange for investing in a new property. The tax code means that if you sell an investment property and want to use some money to purchase a new one, you can defer paying taxes by reinvesting not all but just some of the proceeds from the old sale into a recent acquisition.
Advantages of Using the 1031 Property Exchange
The 1031 tax exchange allows real estate investors not to pay taxes on the sale of one property and reinvest that capital into another similar property without paying capital gains. One significant advantage of the 1031 tax for the property is that you don’t have to pay income taxes on the sale of your current investment; thus, the government will not get its hands on your profits. The 1031 rules also provide sellers with additional flexibility when selling their income-producing properties.
You can also use the money from selling your old home to purchase another property instead of having to come up with the cash out-of-pocket. You can, thus, invest more money into your new property, which means more profit in the long run. You don’t have to worry about paying those pesky agent fees again because all you are doing is exchanging one property for another via a 1031 tax exchange. Using this model frees up more money for investing and saves you time.
Regulations of the 1031 Tax Code
The 1031 property exchange rules allow an investor to sell one piece of property and use the cash to buy another without paying capital gains taxes. The 1031 tax for property enables a seller to defer paying taxes on profits from the sale of a property. The seller must reinvest the profits into another property that is like-kind, but not necessarily identical, in use. The 1031 tax exchange rules don’t include tangible personal property such as equipment, furniture, or fixtures.
Consider Utilizing 1031 Tax Exchange Today
If you consider buying or selling a business, rental property, or investment real estate and would like to use the 1031 property exchange to defer taxes on the sale, please contact your real estate agent for consultation. The 1031 exchange is one of the most generous and beneficial tax laws. It is a real estate investor’s dream come true. You can sell an investment property and defer all capital gains taxes on their profits from the sale while growing your portfolio and increasing possible future gains.