Advantages of a 1031 Exchange
The Business of Solving Real Estate Problems
Real Estate Exchanging
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Borrow Money from the Government
The main purpose for doing a1031 exchange is to defer or avoid paying capital gains taxes now and using your money to purchase other investment property with the money you otherwise would have paid to the Government.
In all reality it is borrowing money from the Government without signing a promissory note, mortgage, or deed of trust, without making installment payments and without paying any interest.
Exchangors Leverage Their Investment
A 1031 exchange is a tax deferred exchange.
Which allows the Exchangor to preserve as much of their equity as possible by putting the cash from a sale into an exchange.
Which in turn shelters the proceeds so they may be used to acquire other investment property or properties.
This allows the investor to leverage what they have.
Using the proceeds from one property and reinvesting in several properties.
Taking the proceeds from the sale of several properties, and combining them into one property.
Exchangors Change the Form of Their Investment
Many investor's have property or properties they no longer wish to own, they would love to invest in other property or properties, but are reluctant to sell, because of the capital gains they would have to pay upon the sale of their property.
The IRS rule of a1031 Exchange allows the investor to take the proceeds from the sale of any property they have held for investment and invest into vacant land, rental, or commercial property.
The ruling also allows the investor to take income producing rental units and exchange into raw land, which can be developed.
Exchange to Move Your Investments
Example:
When an investor moves, they can move everything they have except for their income producing land.
Land doesn't move.
A great way to move the land is to exchange the income producing property you have for income producing property in another location.
A tax deferred exchange of property can be any where in the United States.
Exchanging to Overcome Large Tax Consequences
Most exchanges come about because the tax consequences of a regular sale are enormous.
Your property has a tax basis that was created several years ago, its value most likely has been depreciated completely, or very close.
The loan may have been amortized over a twenty year period of time, and has been reduced by more than halve of its principle amount.
Your tax basis will be low compared to present value of properties, and capital gains will be substantial.
By deferring those taxes using an exchange will make your life and investing a lot more fun.
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The Wonderful World of Real Estate
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Wayne H. Wagie
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