Get the Skinny on the 1031 Property Exchange

Written by admin on May 3rd, 2011

Your head is probably swimming by now by all the technical talk you’ll hear in real estate circles. 1031 property exchange may be just another bit of real estate jargon to you but if you have long-term goals for your real estate investments. It’s a phrase you really need to perk up and pay attention to. This is one term that can open the doors to a brighter financial future for you and your family.

Begin with the Tax Benefits of the 1031 Exchange

It’s a good idea to get right down to basics when learning about 1031 exchanges. The most basic thing you’ll want to know is that this type of real estate transaction allows you to defer any and all capital gains taxes until you sell the property for good. Until that point, as long as you follow the proper protocols and requirements for it to be a 1031 property (and place all proceeds from the exchange into the new property) you will not pay capital gains taxes.

Baby Steps for Long Term Investing Success

With many things in life, you crawl before you walk. You don’t start out with the one real estate investment that will make your fortune. A 1031 property exchange allows you to buy small with the confidence that you can grow your investments. It allows you to create a long-term plan with goals for growth along the way. The reason you decided to invest, after all, is to grow your money. That way it will serve you better in the future than it can serve you now. Real estate is one style of investment that tends to grow well over time. 1031 exchanges allow you to leverage that growth into larger properties, which will bring even more money.

Why is Tax Deferment for 1031 Properties Good?

Do you like to pay taxes? Seriously, no one does and some people will hang onto a property that is no longer serving their needs rather than sell and risk losing money on the transaction by paying taxes. But the benefits go far beyond simply postponing the inevitable taxes. This “property exchange” allows you to postpone to a point in time where you would conceivably have smaller income and be paying the capital gains taxes in a lower tax bracket. In other words, you’re not only paying later but also, you’re also paying less than if you paid them at every stop along the way.

For your part, as an investor, the 1031 property exchange can mean the difference in reaching your goals of financial freedom in the future or only having a little bit of a cushion for your retirement. You won’t find many opportunities like this to build a better life for yourself with such a minimal initial investment.

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