Financial Resource

Whether you’re new to real estate investing altogether or are just getting ready to broaden your investing horizons odds are good that you’ll come across the term 1031 properties at some point along the way. You may be wondering what the big deal about these properties is. Why should you consider a 1031 exchange for your property investment dollar?

Delaying Taxes with 1031 Properties

Does anyone enjoy paying income taxes? If you have long term real estate investment dreams and plans you can defer your taxes by using 1031 exchanges to grow your investment value. Rather than selling your existing investment property, paying the capital gains taxes on the income generate from the sale and then buying the next property you can exchange the lower valued property for the new property and invest the proceeds from the existing property into the new property without paying any taxes on the income—at least not yet. You get to defer the payments until you are essentially ready to cash out or stop trading up.

Why is that 1031 Exchange so Powerful?

Odds are good that during your prime income stage, when you begin investing in commercial real estate you’ll have a higher income than you will when you begin cashing out. Some income swings between working in the private sector and cashing out after retirement can drop your place in the “tax bracket” significantly. By delaying your taxes you aren’t merely putting off the inevitable you might actually be paying in fewer taxes than if you were to pay when you “traded up.”

What does the Government Get by Offering Property Exchanges?

While we’d love to think our government is completely altruistic there’s something in this for them or they wouldn’t be doing it. Not only does this garner support and votes but it also creates investors that are making long-term investments with the future in mind. The more spending power people have, the greater the odds are that they are going to spend that money close to home.

Investors in real estate are often the type of people who are going to build businesses and relationships in the community and support those businesses and relationships. Stronger communities make a stronger country and the powers that be all want to claim credit for that strong economy. The government understands that sometimes, tax breaks bring in greater rewards than would have ultimately been enjoyed by the initial taxation.

When you’re ready to begin investing in 1031 properties you’ll discover that there is almost a new language involved in the process. Don’t allow this to intimidate you from making what could be the best decision you’ll ever make concerning your financial future. Take the time now to get the facts about property exchanges and what they can mean for your retirement plan.

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