Financial Resource

A lot of people are taking advantage of a 1031 tax exchange, and they are benefiting greatly from it. The basic principle behind one of these exchanges is that one piece of property is exchanged for another piece of property that is of the same value. There are several different exchanges that can take place, but every one of them must be completed within 180 days.

One of the greatest benefits that comes from a 1031 tax exchange is that no capital gains tax must be paid. This type of transaction is not seen as a sale but as a transfer of goods, which does not qualify for capital gains tax since no gain is taken on it. The key is that the two properties have to be of “like kind” or worth the same amount of value.

A 1031 exchange can easily be used to increase cash flow if you know what you are doing. For example, a small home improvement contractor or even an individual person could buy a home at below market price, which is not very hard to do today, and then renovate the home and rent it out for a year or two. Then, they can take the home and with a 1031 exchange buy two rental properties that are equal to what the first one is and then proceed to fix those houses up. The person now has two houses that they can rent, which increases their cash flow by 100%.

A 1031 exchange can save both a business and an individual tons of money on taxes and should always be looked at as an option before selling property. It has so many benefits, but you need to make sure that you know all the rules or work with a third party who can help you with the exchange.

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