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Marvelous Benefits of the 1031 Exchange - Learn from the Pros

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A tax deferred exchange allows you to sell a piece of investment or business property, buy a new property with the gain or profit from the sale, and not owe taxes on the sale immediately. The 1031 tax exchange offers investors one of the last great opportunities to build wealth and save in taxes.

By completing an exchange, the investor (Exchanger) can dispose of their investment property, use all of the equity to acquire qualifying 1031 replacement property, defer the capital gain tax that would ordinarily be paid and leverage all of their equity into a replacement property and or properties. Generally, all gains and losses on sales of real estate are taxable, but an exception lies where the property sold is traded or exchanged for "like-kind" property. The new property is treated as a continuation of the original investment, so taxes are not due at the time of the sale.

Many people view 1031 tax deferred exchanges as a tool used only by big companies or for professional investors. However, the 1031 exchange is accessible to anyone with a rental property or business property. An example of a powerful wealth building strategy leveraging the benefits of the 1031 exchange is to purchase a rental home below market value, rent it for a year, sell it, and buy two rental properties with your gain. However, you should discuss your strategies with a qualified attorney handling 1031 exchanges such as the attorneys at LegalCreation.com to make sure that the IRS considers your situation as qualified for deferred tax treatment.

Another useful example to highlight the benefits of the 1031 exchange is to imagine that you own a rental property that has increased in value. You plan to sell the property and then reinvest the gains into another rental property. If you find a suitable property that qualifies for 1031 tax exchange you may avoid the subsequent tax bill. However, the tricky part of the tax deferred exchange is that the new property you plan to purchase must be identified and purchased (closing date) within a certain amount of time and no extensions are possible. Also, the sale and purchase must be structured as a1031 transaction.

Having a qualified 1031 exchange intermediary such as LegalCreation is an important element to fully taking advantage and complying with 1031 exchange policies.

 

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