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1031 Property Exchange: A Gift That Keeps Giving

Categories: Finance Online
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Deed contract to a propertyGoing after 1031 properties in Nevada might just hold the key to making it big in the real estate sector. In the cash-intensive sector, you need all the help you can get, and the section 1031 of the Tax Code comes bearing gifts.

Under this section, you get to hang on to every cent you make in capital gains after selling commercial property. The only catch is that you must use the sales proceed to buy another commercial property of equal or greater value. The means that you don’t get to pocket a single dollar from the sale.

While that might seem like a disadvantage, the benefits more than make up for it. 1031 Exchange Place gives a few examples.

Greater Buying Power

If you are a high-income taxpayer, selling a property within a year of buying it saddles you with capital gains tax of up to 43.4 percent. Such a high rate is enough to make you pass on cashing in on the short-term gains. By making a 1031 property exchange, you get not only save the money but also invest it.

It means that you can buy bigger equity in the replacement property and access affordable financing when shopping for a mortgage. With a sound financial footing, you can acquire a prime property, which comes with a higher rental income.

Greater Investment Options

The property market is highly fluid and dynamic, and the key to success in the sector is being on the right side of the change. A property exchange helps you to always be on the money. It gives you the chance to diversify your holdings to lower investment risk and liquidate the unprofitable ones.

If the rental income in the residential sector is on the decline, you cash out of an apartment block and buy an office block. You can also buy part of a bigger complex in a lucrative cosmopolitan setting.

The section 1031 of the Tax Code is real investor’s best friend. With the proper strategy, you can harness the benefits it brings and grows your wealth and investment.