Investors of all levels continue to benefit from 1031 tax-deferred exchanges. Due to strong economic growth, property values have been appreciated in many areas throughout the county. Beyond increasing purchasing power, 1031 exchanges offer investors leverage, consolidation, diversification, management relief, and increased income and cash flow.
LEVERAGE
An investor can use the 1031 tax-deferred exchange to acquire a more valuable investment property. As a result, they can increase their downpayment and improve their overall buying power by using tax money they would have paid to the IRS previously. Through real estate investment, they can leverage their cash and build wealth.
DIVERSIFICATION/CONSOLIDATION
Investors can exchange one property for several others, consolidate multiple properties into one, and acquire properties anywhere in the country. An investor can, for example, exchange two duplexes for three commercial properties in Arizona or take advantage of the new growth area by exchanging one California property for three in Arizona.
MANAGEMENT RELIEF
Multi-property investors face intense management and costly maintenance – resulting in increased headaches! Investing in an apartment building or NNN leased investment can increase profits and decrease time and effort for investors.
AN INCREASE IN CASH FLOW AND INCOME
Tax-deferred exchanges can increase both cash flow and overall income. It is possible to exchange a vacant parcel of land that generates no cash flow or depreciation benefits for a commercial building.
If appropriately used, 1031 can be a powerful tool for building wealth over a lifetime by deferring capital gains tax and using the proceeds from a sale to purchase more significant properties. Bypassing the property on to your heirs when you pass away, you can also avoid paying deferred capital gains taxes.
You should consider a 1031 exchange if you plan on selling an investment property you own or accumulating properties throughout your lifetime. It is essential to work with qualified professionals to ensure that all the rules are followed if you determine a 1031 exchange is suitable.
