1031 exchange tax deferred benefits are hard to ignore
Section 1031 of the Internal Revenue Code contains arguably one
of the most powerful provisions of the tax code for real estate
investors… the 1031 tax exchange. Many highly successful real
estate investors have used this tax code provision in
combination with aggressive pyramiding and upgrading strategies
to amass huge investment property portfolios. Here’s how it
Section 1031 in allows you to exchange “like-kind” investment
properties without triggering the payment of capital gains tax.
As your property assets appreciate in value you have the ability
to upgrade into larger properties with greater cash flow.
Section 1031 also gives you the flexibility to exchange your
rental properties that have appreciated in value in hot markets,
and re-invest into lesser-known areas that are expected to
develop and become the next hot market in years to come. You can
continuously defer these capital gains taxes as you continue to
pyramid your property investment portfolio into larger and
1031 EXCHANGE BENEFITS
There are a lot of benefits to considering the use of a 1031
TAX DEFERRED INVESTING
The ability to re-invest your entire property equity without tax
erosion can significantly enhance the amount of capital that
stays invested and can make it easier to upgrade into higher
value properties with greater cash flow.
INCREASE CASH FLOW
This decision to upgrade into higher quality properties with
greater cash flow can occur faster now that taxes are a lower
priority transaction decision. In some markets the real estate
values can get ahead of the available cash flow available from
the property. In these situations it may make sense to lock in
your gain and look to re-invest in another property where you
can achieve higher cash flow returns.
TIMING THE MARKET
The ability to speculate on the next hot market area or region
is a much easier decision under a 1031 exchange. Why not lock in
your profits on property that has already risen dramatically in
value and re-invest it in the next hot market? As long as your
capital gains are deferred making these transaction decisions is
If you are stepping up your portfolio through a series of
exchanges over time your full capital gain can be re-invested
without tax consequence, resulting in accelerated equity
The ability to switch into “like-kind” properties as defined in
the tax code gives you a range of investment options and
flexibility. If you don’t want a lot of the headaches associated
with managing property you can also consider Tenant in Common
exchanges, which do qualify under Section 1031 of the tax code.
1031 tax exchanges gives real estate investors a lot more
options and flexibility to make better investment decisions on
their real estate holdings without the issue of tax over-riding
sound judgment. If you own a rental property or are considering
it you owe it to yourself to see if a 1031 exchange is right for
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About the Author
For more information on 1031 exchange requirements you can visit http://www.1031exchan
gelistings.com information portal.