5 Major Benefits of a 1031 Exchange

Looking to invest in new real estate and are in for a hunt for 1031 exchange companies in Nevada? Well, you are making a wise decision. A 1031 exchange or tax-deferred exchange is a simple way to make the most of tax breaks that investors can avail of. By selling or relinquishing a property and reinvesting its proceeds to acquire a like-kind property, you defer a taxable event.

Below are the major benefits you can get from a 1031 exchange:

1. Deferred Taxes

Yes, deferring taxes is the main purpose of 1031 exchanges and it is what investors want. When you find a replacement property, you defer ordinary income taxes, depreciation recapture, and capital gains taxes. Coming at a significantly low adjusted cost basis, these taxes can definitely be of great help to lessen your burden when acquiring new property. Essentially, you will get no tax at the time of exchange. Although there may be some limited tax due, it could be insignificant to what you will realistically incur.

2. Higher Cash Flow

With tax deferment, your pockets will be far fuller. As such, you can purchase more, leveraging on higher potential options of real estate properties compared to a limited range when taxes erode your funds. This cash flow difference is enough to realize an additional benefit more than the deferred taxes. You will ensure that the new replacement property will be of higher value than your original property plus the taxes paid on it.

3. Wealth Building Mechanism

As a consequence of the higher cash flow, 1031 exchanges will allow you to build wealth. There is no limit on doing a 1031. You can swap properties in the long term until you realize the profit and then pay only one tax once. This increases your net worth, better than an ordinary investor who gains from every single sale with every single tax payment. You can sell many properties yearly and pass them on to your children at the time of your passing.

A scale house on some forms for a deed to concept

4. Management Relief

A unique thing about 1031 exchanges is that you can exploit some opportunities to better manage properties, i.e. sell hard-to-manage properties in place of easily managed ones. Ordinarily, many properties have issues with maintenance and intensive management requirements. You can avoid these (plus the additional costs in managing them) by exchanging and replacing them for properties with significantly lesser maintenance needs.

5. Government as a Partner

With a 1031 exchange, you build wealth with the government as your partner. You only have to clear a few requirements then it is a go. First, you have to ensure that the property to be exchanged is not a personal residence. Second, the replacement property should be like-kind. Lastly, you must meet deadlines and time frames, i.e. 45 days to nominate a potential replacement and 180 days to acquire the replacement (includes the 45-day nomination period).

1031 exchanges are easy options to manage real estate wealth. You avoid taxes, gain profit, and eventually build your net worth for as long as it is possible to make exchanges. Note that in case the investor dies, the cost basis of the last property (one that will no longer be with a 1031 exchange) will be adjusted to its current value.

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