1031 Tax: Good For Investors, Good For The Economy

The 1031 exchange is a technique used by property investors to indefinitely defer capital gains tax liability on the sale of a property. This is accomplished by relinquishing rights to a piece of property that one would like to sell to a qualified intermediary, who then holds on to the sale proceeds and uses them to purchase a replacement property that complies with the regulations delineated in Section 1031 .

While the present interest in the 1031 may lead you to believe that Section 1031 is a recent development, this is untrue. As a matter of fact, the 1031's history extends as far back as 1921, though the original concept was significantly different from the 1031 exchange we have come to know and love. Section 1031 really came into its own in the seventies, which saw many significant modifications in the manner that exchanges were conducted. These modifications paved the way to a more far-reaching conception of the process and created increased interest from property investors.

The capital gains deferral a 1031 exchange grants to the taxpayer might, at first glance, seem to be a sort of gift from the United States government, however it is, in reality, more like an interest-free loan, because there is an expectation that the taxpayer will repay the money acquired by way of the capital gains tax deferral by paying capital gains taxes on the subsequent sale of a replacement property. In addition, this interest-free loan may be kept for an indefinite period of time; an investor may elect to make any number of 1031 exchanges before finally deciding to make an outright sale, on which capital gains taxes must be paid.

The 1031 exchange represents a mutually beneficial arrangement between the investor and the U.S. government, providing a benefit for the U.S. economy as a whole in addition to the individual taxpayer. In viewing the transfer of money in an exchange as representing a continuation of a preexisting investment instead of as a separate transaction liable to be taxed, taxpayers are given the opportunity to move their funds to the most profitable possible investments. This, in turn, boosts the economy by bolstering job growth.

Like anything else, the 1031 exchange has its skeptics. one objection that has been raised against Section 1031 is that the tax-free profit gained by to the taxpayer in the exchange process lends them an unreasonable advantage. Another frequent concern is that the stringency of the time limits imposed on some aspects of the exchange procedure may promote an atmosphere of frantic buying, with a resultant increase in asking prices for replacement properties. The aforementioned criticisms, however, are only loosely linked to reality, and the odds that the 1031 exchange will go through any noteworthy changes in the coming years are slim. When looking at the big picture, most will agree that the 1031 exchange is immensely beneficial to all involved, as it allows taxpayers increased profits on the sale of property while also encouraging job growth and therefore the greater good of the country as a whole. There is no reason to doubt that the 1031 exchange is destined to remain a mainstay of the property investment world for years to come.

Article Source: http://www.articlemonk.com

Many Investment Properties Qualify For A 1031 Property Exchange. Be Sure To Consult With A 1031 Exchange Intermediary To Maximize Your Tax Savings. More Information Is Available At www.Top1031Exchange.com

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