Appreciation
Due to an increase in demand, there is a good chance your property has appreciated. Your property may be at or close to maximum appreciation. A 1031 Exchange may be a great opportunity to defer your capital gains taxes and use the equity to purchase property with more appreciation potential.
Depreciation
Every year that commercial/investment property is owned, you are eligible for depreciation deductions on your tax return until your property is fully depreciated. The recapture tax that is typically due when the property is sold is deferred by structuring the transaction as a 1031 Exchange.
Cash Flow
Your apartment building, single family rental or other investment property may not be yielding you the largest return. A 1031 could increase cash flow opportunity by exchanging into a different investment property or a more
passive income growth DST.
Diversification
Many people think that once they sell a property, they must remain in the same type of property to satisfy the IRS’s requirement of like-kind. Not true. A taxpayer can purchase any type of real property for replacement property. In other words, a taxpayer can sell a single family rental home and purchase an apartment building or sell farm land and purchase a condo. A 1031 gives you opportunity to maximize diversification.
Tax Deferral
Stimulating new and leveraging more investment with 1031 tax deferral is a powerful tool used to preserve equity and strategically build wealth for inheritance.
Summary
In summary, through a 1031 Exchange, an investor can sell investment property and accomplish a number of tax and investment goals. A 1031 Tax Deferred Exchange permits the investor to defer federal capital gains tax, depreciation recapture tax, investment income tax imposed by the Affordable Health Care Act and state tax. The investor can buy property with improved cash-flow, and if encumbered, it will provide an interest deduction. If the replacement property is greater in value than the relinquished property, then depreciation deductions will also be available for the increased basis. Additionally, because multiple properties can be acquired through a single exchange, the investor can diversify the real estate portfolio, thereby hedging the investment risk inherent in a single property, or alternatively sell multiple properties to combine into one replacement property.
In our world today, virtual Pokémon are invading. For 1031, keep your game real and maximize your investment opportunities by capturing the strength of 1031 benefits. Take the time to review your investment real estate portfolio. If repositioning a real estate portfolio is for you, the valuable opportunities of a 1031 Exchange should definitely be considered. Be strategic and go catch ‘em all!
Investment Property Exchange Services, Inc. (IPX1031) is a Qualified Intermediary providing a full range of tax deferred exchange services across the country including forward, reverse and build-to-suit transactions. 1031 Exchanges are all we do here at IPX1031, so we know all the ins and outs of the safe harbor regulations. We pride ourselves on not only being the industry leader in service and security, but also strive to be your valued information resource. As the nation’s largest 1031 Intermediary, IPX1031 has offices throughout the country and a highly skilled team of exchange attorneys, CPAs, coordinators and sales executives to provide quick answers and guidance. We look forward to helping you and/or your clients maximize qualifying investments through a 1031 Exchange strategy.
