Real Estate Investors: Use Section 1031 To Defer Your Capital Gains Taxes

As a player in the real estate investment game, you are aware that every dollar that you have working for you is compounding your wealth, and, conversely, that each and every dollar that isn't working for you is a lost chance to compound your funds. When the time comes to make a sale on a piece of real estate, you have 2 options. The first option at your disposal is to sell the property up front and recognize a capital gain. This means that you must pay capital gains taxes . Every time you had money over to the government you are losing potential profits.

Your second, and often more lucrative option is to make a 1031 tax exchange. A great way to keep more of your investment funds working for you is to perform an exchange rather than making an outright sale. A 1031 exchange has a provision of non-recognition; this means that you aren't obligated to pay the taxes immediately following your sale; as a matter of fact, you can defer the taxes indefinitely, while your money is compounded by the extra income produced by investing your tax deferment.

By way of example, let's say that you are the owner of several small investment properties, like triplexes, whose values have appreciated over time. At this juncture, your first instinct may be to sell these properties and collect on your investments. But a wise investor with an eye to the future might decide to make a 1031 exchange and put the money gained from the sale of these smaller properties towards buying another investment property, which will, itself go on to increase in worth over time and continue to compound your wealth. Additionally, the funds at your disposal as a result of deferring capital gains taxes will work to increase your ability to leverage for further loans, building up your potential profits.

Section 1031 doesn't apply just to land and buildings, either. It is possible to make a 1031 exchange on any sort of real estate held for investment in a trade or business, as well as some kinds of personal property, from cranes or backhoes to an aircraft or collector car. In fact, Section 1031 is particularly beneficial for those who have money in antiques or collectibles like collector cars, in light higher capital gains tax liability on the sale of these types of items. It is important to note, however, that you cannot exchange shares of stock, bonds, or interest gained from a Real Estate Investment Trust.

So, next time you are in the position to sell a piece of real estate or other property, take a moment to consider the profit you could gain were you to exchange instead. If you decide an exchange rather than selling up front, you can build your profits over time and come out ahead in the end.

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Many Types Of Investment Property Qualify For A 1031 Tax Exchange. Be Sure To Consult With An Expert That Offers 1031 Exchange Services To Maximize Your Tax Savings. More Information Is Available At www.Top1031Exchange.com

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