A Quick Intro to 1031 Exchange
You could also refer the 1031 exchange as starter exchange. It is possible for the investors to defer paying capital gains taxes on the property through the use of 1031 exchange. Without incurring tax liability an investor could acquire property through the use of 1031 exchange.
The delayed tax burden makes it possible for an investor to acquire a low-income property that needs high maintenance. The burden of tax is removed when an investor uses 1031 exchange especially when moving investments from one location to another.
Only the properties of the same kind and value could be swapped through the use of 1031 exchange. However it could be challenging to find another property of the same kind to swap with, for this reason, many of the exchanges takes long or get delayed.
Every time you nee to sell an investment property you are required to pay capital gains tax. To sell an investment property you could incur a lot due to the tax burden. BY using the 1031 exchange you make a kill when selling a rental property that has more value than the time you acquired it.
1031 exchange allows you as an investor to swap a property for another one of the same kind and value. The 1031 exchange allows you as an investor to buy time for paying the tax.
1031 exchange does not mean that an investor will avoid paying tax. It actually helps an investor buy time before they pay for tax. The 1031 exchange helps the investor avoid sudden tax obligation. The main beneficiaries of 1031 exchange are the real estate investors.
The rules of the 1031 exchange requires that both the purchase price and the loan amount be the same or a bit higher than the replacement property.
There are four categories of the 1031 exchange which includes the simultaneous exchange, delayed exchange, reverse exchange and the construction or improvement exchange.
The exchange happens in one day through the simultaneous exchange. It is not common to find investors using the simultaneous because it is difficult to find another investor with the same kind of property. Finding another property of the same kind or exchange is very difficult.
1031 exchange’s most common swap is that of delayed exchange. The delayed exchange allows investors to sell properties while they wait for the property of the same kind to be found.
This type of exchange is difficult to achieve since an investor will be required to part with all the money required for the purchase of the property and the banks may fail to lend.
When the property an investor is supposed to acquire is of less value than the one they want to relinquish the construction or improved exchange is used to build or enhance the property to be bought or exchanged for.
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