1031 Exchange - How It Can Help Save You Money on Capital Gains

1031 Exchange - How It Can Help Save You Money on Capital Gains Since around 1921, section 1031 exchanges have been an important part of the tax code.

A “1031 exchange” is a nickname used to discuss Section 1031 of the US Internal Revenue Service’s tax code. This section tends to state that if an individual exchange one investment property for another via 1031 exchange, then they may be able to deter capital gain or losses that they would otherwise have to pay at the very time of sale.

Choosing to exchange properties instead of selling and purchasing new assets has a variety of benefits, which 1031 Advisors in Utah make you aware of.

Not only are there significant tax breaks associated with the 1031 trade, but it can also help investors roll their Capital into more lucrative investments on a quick basis. But 1031 exchange rules and timing requirements are very strict and must be followed in order to qualify for tax deferral. So, understanding the core basics of a 1031 strategy and having the right 1031 exchange team in place is crucial to perform a strategic and successful exchange.

Understanding why 1031 exchange is Important?

It certainly allows real estate investors to defer paying capital gains and consequently build potential wealth through real estate investing. Let us understand the scenario with the help of an example – If you buy a piece of real estate for say $100,000 and then sell it for around $500,000, then you are subject to paying total capital gain taxes on your $400,000 profit. From that profit of $400,000, you lose around $120,000 to capital gain taxes. But with a 1031 exchange, you then might be able to use the $500,000 to purchase one or even more new properties and pay no capital gains taxes at the time of sale. Thus, this sale proceeds funding new investment properties, which in turn generates cash flow and appreciation.

These exchanges matter because they help real estate investors in creating more wealth. Investors may use 1031 exchanges throughout their career to buy bigger and better properties and potentially reap the rewards. Having a valuable 1031 exchange partner becomes important. A good one will be:

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Well respected and established – 1031 exchange industry is comparably a small community. So, if you are considering working with a 1031 exchange advisor, be sure to ask if you can speak up with prior clients.

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Able to provide strategic consultation – Proper planning is necessary for extending the timeline and allow proper strategic decisions to be made. They should be able to execute plans which are in favor of all.

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Having Strong Network – A competent and established 1031 advisor should have a strong network of proven and trusted outside individuals or even firms that can be well recommended to a client if needed.

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